FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND...

107
Copyright 2013, Gair B. Petrie ESTATE AND INCOME TAX PLANNING FOR RETIREMENT PLANS AND IRAS BY: GAIR BENNETT PETRIE J.D., LL.M. RANDALL | DANSKIN 1500 Bank of America Financial Center Spokane, Washington 99201-0653 (509) 747-2052 [email protected] GAIR B. PETRIE is a shareholder in the law firm of Randall | Danskin, P.S. in Spokane, Washington. He graduated from Gonzaga School of Law and received an LL.M. in federal taxation from the University of Florida. His primary areas of practice include estate planning, qualified and non-qualified retirement plans and compensation related matters. Mr. Petrie is a frequent lecturer at continuing legal education programs for Idaho, Washington and Oregon Lawyers and Certified Public Accountants. In addition, he has published several articles in national publications dealing with estate planning and qualified retirement plan issues. He taught estate planning as an adjunct professor of law at Gonzaga School of Law for over 20 years. Mr. Petrie is a Fellow in the American College of Trust and Estate Counsel ("ACTEC"). Date Revised: February 2013 F:\Users\Gair\Seminars\Seminar Presentation WSBA 02.08.13 tracked changes.doc

Transcript of FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND...

Page 1: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie

ESTATE AND INCOME TAX PLANNING

FOR RETIREMENT PLANS AND IRAS

BY: GAIR BENNETT PETRIE

J.D., LL.M.

RANDALL | DANSKIN

1500 Bank of America Financial Center

Spokane, Washington 99201-0653

(509) 747-2052

[email protected]

GAIR B. PETRIE is a shareholder in the law firm of Randall | Danskin, P.S. in Spokane,

Washington. He graduated from Gonzaga School of Law and received an LL.M. in federal

taxation from the University of Florida. His primary areas of practice include estate planning,

qualified and non-qualified retirement plans and compensation related matters. Mr. Petrie is a

frequent lecturer at continuing legal education programs for Idaho, Washington and Oregon

Lawyers and Certified Public Accountants. In addition, he has published several articles in

national publications dealing with estate planning and qualified retirement plan issues. He taught

estate planning as an adjunct professor of law at Gonzaga School of Law for over 20 years.

Mr. Petrie is a Fellow in the American College of Trust and Estate Counsel ("ACTEC").

Date Revised:

February 2013 F:\Users\Gair\Seminars\Seminar Presentation WSBA 02.08.13 tracked changes.doc

Page 2: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie

CHAPTER 13

ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS

Gair Bennett Petrie

Summary

§13.1 Scope and Coverage

§13.2 Income Tax Factors

(1) Minimum Distribution Rules

(a) Required Beginning Date

(b) Distributions While the Participant is Living

(c) Distributions After Death

(d) Spouse

(e) Nonspouse Individual Beneficiary

(f) Non-Individual (or No) Designated Beneficiary

(g) Multiple Beneficiaries

(h) Separate Accounts / Quasi-Separate Accounts

(i) Trusts as Beneficiary (Multiple Beneficiaries and the "Conduit Trust")

(j) Beneficiary's Right to Name a Beneficiary/Transfer Account

(k) Non-Spouse “Rollover”

(l) Excess Distributions

(m) Penalties for Failure to Meet MDIB

(n) Liquidity Planning

(2) Income in Respect of a Decedent (IRD)

(3) Early Distribution Penalty, I.R.C. §72(t)

(4) Roth IRAs

§13.3 Estate Tax

(1) Disclaimer

(2) Funding the Credit Trust; Non-Pro Rata Distribution Planning

(3) QTIP Trust

(4) Charity as Beneficiary

§13.4 Gift Tax

§13.5 Spousal Protection Under ERISA

§13.6 Community Property

§13.7 Creditors' Claims

§13.8 Inherited IRA

The author expresses no legal, tax, or other opinions herein or with regard to the forms

appearing as appendices (or any other forms attached to this Article). Also, the author takes

no responsibility for misstatements or errors that may appear herein as these materials cannot

be relied upon as research materials. The following should only be used upon a thorough

review of the client’s facts and applicable law. Moreover, the reproduction of

Reg. 1.401(a)(9)-9 appearing at Appendix I is for illustrative purposes only and, due to

possible updates and computer glitches, only the actual regulation from a service publishing

the same should be used to make a calculation

Page 3: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 1 -

§13.1 SCOPE AND COVERAGE

This chapter will analyze the complicated interplay between various federal and

Washington state laws that the planner must take into consideration in planning with a client's

tax-qualified retirement plan or IRA. Throughout this chapter, references to the Internal

Revenue Code, Title 26 U.S.C., will be indicated as I.R.C., and references to Treasury

Regulations, Title 26 C.F.R., will be indicated as Treas. Reg.

§13.2 INCOME TAX FACTORS

This section discusses the principal income tax factors that should be considered when

selecting the beneficiary of the working spouse’s account.

(1) Minimum distribution rules

Assets held by a qualified retirement plan or individual retirement account (IRA) are

allowed to grow without being subject to the income tax until distributed to the participant or the

participant’s beneficiary. I.R.C. §501(a). Thus, clients who do not need current distributions to

provide for their support will generally choose to defer receiving distributions as long as

possible. Because the primary purpose of exempting the accounts from the federal income tax

was to allow taxpayers to accumulate the funds needed for support in retirement, the law

includes a complex set of rules that are intended to assure that funds in a retirement account are

used for that purpose. I.R.C. 401(a)(9). Clients will most often wish to preserve the option of

allowing the funds in an account to grow for the longest possible period. Income tax deferral, of

course, is subject to the minimum distribution rules of I.R.C. 401(a)(9) and final Treasury

Regulations issued thereunder. The minimum distribution rules establish when distributions

must begin and the methodology by which minimum required distributions are calculated both

before and after the account holder’s death.

RMD Holiday for 2009. The Pension Act of 2008 added IRC §401(a)(9)(H) under which

no RMD is required for the 2009 calendar year from tax-qualified retirement plans under

IRC §401(a), 403(b) plans, 457(b) plans of governmental entities (but not 457(b) plans of

tax-exempt organizations) and IRAs.

For an account holder who had an RMD requirement in 2009, the 2009 distribution was

simply missed and the account holder commenced again in 2010 based on the account

holder’s age in 2010 under the Uniform Lifetime Table.

The RMD holiday also applied to inherited IRAs so that an IRA beneficiary who would

otherwise have an RMD requirement for the 2009 calendar year, did not have to take the

2009 RMD. Although there was no RMD in 2009, the divisor for the 2010 RMD and

each year’s RMD thereafter is still calculated as though the 2009 RMD occurred. In

other words, the divisor is still reduced by one (1) for 2009.

If an inherited IRA was subject to the five (5) year payout rule, calendar year 2009 was

disregarded effectively extending the five-year rule by one year.

(a) Required beginning date

Page 4: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 2 -

Under I.R.C. §401(a)(9), distribution must begin not later than the “required

beginning date.” Generally, the required beginning date is April 1 of the calendar year following

the calendar year in which the participant attains the age of 70 1/2 without regard to the actual

date of retirement. However, an individual, other than a five-percent owner (defined at I.R.C.

§416), may defer commencement of distribution from a retirement plan (but not an IRA) until

April 1 of the calendar year following the calendar year during which the individual terminates

employment. I.R.C. §401(a)(9)(C). An individual is a five-percent owner if he owns, with

application of the attribution rules of I.R.C. §318, more than five percent of the employer.

Moreover, a different required beginning date may apply if an old “§242(b)(2) election” is in

place. Treas. Reg. 1.401(a)(9)-8, Q-13, A-13.

For the purpose of determining the required beginning date, an employee attains

the age of 70 1/2 on the date that is six months after the 70th anniversary of that employee’s

birth. Treas. Reg. 1.401(a)(9)-2, Q-3, A-3.

Generally, the participant’s first “distribution calendar year” is the year the

participant attains the age of 70 1/2. Treas. Reg. §1.401(a)(9)-5, Q-1, A-1(b). Thus, if a

participant attains the age of 70 1/2 in 2005, and under the required beginning date rules defers

the initial distribution until 2006, two minimum distributions must occur in 2006. The minimum

distribution for 2005 must occur by April 1, 2006, and the minimum distribution for 2006 must

occur before December 31, 2006.

Distributions pursuant to a valid TAX EQUITY AND FISCAL RESPONSIBILITY ACT

(TEFRA) §242(b)(2) election do not have to comply with the required beginning date rule.

Treas. Reg. §1.401(a)(9)-8, Q-13, A-13. A TEFRA §242(b)(2) election was a transitional

election that could only be made on or by December 31, 2003. The election, if properly made

and if not revoked, could permit an account holder who is a more than five percent owner of an

employer to defer the required beginning date under the employer’s retirement plan until the

calendar year following the calendar year of retirement.

(b) Distributions while the participant is living

When the account holder is alive on his required beginning date, minimum

distributions are made with reference to the Uniform Lifetime Table of Treas. Reg. §1.401(a)(9)-

9. This table is as follows:

Uniform Lifetime Table

Age of Account Holder Distribution Period

70 27.4

71 26.5

72 25.6

73 24.7

74 23.8

75 22.9

76 22.0

77 21.2

Page 5: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 3 -

Age of Account Holder Distribution Period

78 20.3

79 19.5

80 18.7

81 17.9

82 17.1

83 16.3

84 15.5

85 14.8

86 14.1

87 13.4

88 12.7

89 12.0

90 11.4

91 10.8

92 10.2

93 9.6

94 9.1

95 8.6

96 8.1

97 7.6

98 7.1

99 6.7

100 6.3

To properly apply the Uniform Lifetime Table, the attained age of the account

holder in the year in question is used. For example, if the account holder was born in the first

half of the year, then he or she will have only attained age 70 in the year he or she reaches age

70 1/2. The first minimum distribution would be 1/27.4. If, by contrast, the account holder’s

birthday was in the second half of the calendar year, then he or she would have attained age 71 in

the first distribution calendar year and the first minimum distribution would be 1/26.5.

The applicable divisor under the Uniform Lifetime Table is applied to the account

balance as of the last valuation date in the calendar year immediately preceding the distribution

calendar year. For example, if the account holder attains age 70 1/2 in 2010 but defers the first

minimum distribution until April 1, 2011, assuming a calendar year plan (or an IRA), the

valuation date for the first minimum distribution would be December 31, 2009 (for the 2010

minimum distribution deferred to the required beginning date) and December 31, 2010 (for the

2011 minimum distribution required by December 31, 2011). Treas. Reg. §1.401(a)(9)-5, Q-3,

A-3(a). It should be noted that, in the case of a qualified plan on a fiscal year, adjustments may

be made for contributions or distributions following the valuation date during the calendar year

containing the valuation date. Id. However, in the case of an IRA maintaining its records on the

calendar year, contributions or adjustments following the December 31 date will not affect the

account balance to be used in determining the appropriate minimum distribution for that calendar

year. Thus, if one were calculating the minimum distribution for the 2010 calendar year with

respect to an IRA, contributions after December 31, 2009 would be disregarded in determining

Page 6: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 4 -

the account balance. Of course, distributions in 2010 would be applied against any further

required minimum distribution.

The identity of the account holder’s designated beneficiary on the required

beginning date is irrelevant with one exception. If the spouse is the sole beneficiary of an

account (or when the spouse is the sole beneficiary of a separate account under Treas. Reg.

§1.401(a)(9)-8, Q-2, A-2), and the spouse is more than ten years younger than the account

holder, the actual joint life expectancy of the participant and spouse under Treas. Reg.

§1.401(a)(9)-9, Q-3, A-3, recalculated annually (only during the couple’s lifetime), may be used.

Treas. Reg. §1.401(a)(9)-5, Q-4, A-4(b). The regulations specify that marital status is determined

on January 1 of each year. Treas. Reg. §1.401(a)(9)-5, Q-4, A-4(b)(2). Thus, if the exception is

being used and the spouse dies (or the couple divorces) during the calendar year, the account

holder would, in the succeeding calendar year, switch to the Uniform Lifetime Table.

To illustrate the effect on the minimum distribution calculations of tying the

required beginning date to age 70 1/2, consider the following: If an account holder’s date of

birth is June 30, 1936, the 70th anniversary of the account holder’s birth is June 30, 2006. The

account holder attains the age of 70 1/2 on December 30, 2006. In such case, the account

holder’s first minimum distribution would be due not later than April 1, 2007, and would be the

account balance on December 31, 2005, divided by 27.4. If, instead, the account holder’s date of

birth was July 1, 1936, he or she would be age 70 1/2 on January 1, 2007. This would push the

required beginning date off to April 1, 2008; and, because the account holder attained age 71 in

the year he or she reached age 70 1/2, the first minimum distribution would be the December 31,

2006, account balance divided by 26.5.

(c) Distributions after death

Under Treas. Reg. §1.401(a)(9)-5, Q-4, A-4, minimum distributions essentially

accrue on January 1 of each calendar year. Thus, in the year the account holder dies, the

minimum distribution for that year will be calculated under the Uniform Lifetime Table and

distributed no later than December 31 of the year of death. Depending on the language of the

applicable plan or IRA document, this distribution belongs to the designated beneficiaries and is

taxed to those beneficiaries. As discussed below, postdeath distributions commence in the

calendar year following the calendar year of death. In sum, if an account holder dies after his or

her required beginning date, there is still a minimum distribution for the year of death in addition

to the minimum distribution required for the year after death and each year thereafter. As

discussed below, Rev. Rul. 2005-36 permits a beneficiary to receive the decedent’s final RMD

without such receipt disqualifying a later disclaimer.

The regulations under §401(a)(9) unify, with a few exceptions, the rules applying

to the account of a participant who dies either before or after the required beginning date. The

key issue is the identity of the beneficiary whose life expectancy, determined under Treas. Reg.

§1.401(a)(9)-9, Q-1, A-1, will be used to calculate minimum distributions following the death of

the account holder. The beneficiary may be identified in the beneficiary designation of the

account holder or pursuant to the terms of the custodial account agreement or the plan (i.e.,

default provisions). Treas. Reg. §1.401(a)(9)-4, Q-1, A-1. Beneficiaries may be designated by

Page 7: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 5 -

class (i.e., children) as long as the class member with the shortest life expectancy at the time of

the account holder’s death is identifiable. Id.

There are really only two differences between death before versus death after the

required beginning date: (i) if the account holder dies before the required beginning date and

there is no designated beneficiary as described below (or if there is a beneficiary and the plan or

IRA so mandates), the entire account must be distributed within five years under Treas. Reg.

§1.401(a)(9)-3, Q-2, A-2 (known as the “Five Year Rule”), and (ii) if the designated beneficiary

is the surviving spouse, he or she may defer commencement of minimum distributions until the

account holder would have reached age 70 1/2 under Treas. Reg. §1.401(a)(9)-3, Q-5, A-5.

Otherwise, the postdeath distribution rules are essentially unified regardless of whether death

occurred before or after the required beginning date. It should be noted that the terms of the plan

or the IRA custodial agreement may elect or require the Five Year Rule in the case of the

account holder dying before his or her required beginning date, although such language is

becoming rare. Moreover, sometimes the plan language permits the beneficiary of an account

holder who dies before his or her required beginning date to elect the Five Year Rule in

accordance with the terms of the plan or IRA document.

In private letter ruling 200811028, an IRA owner died before his required

beginning date with a child as his designated beneficiary. The IRA stated that, if the account

holder died before his required beginning date, RMDs will be computed over the designated

beneficiary’s life expectancy with the first such distribution to occur by December 31 of the

calendar year following the calendar year of the account holder’s death all in accordance with the

regulations. The IRA document went on to say that the beneficiary may elect distributions in

accordance with the five-year rule wherein the entire IRA must be distributed by the end of the

fifth calendar year following the calendar year of death. In this case, the beneficiary missed the

RMD for the first two calendar years after the calendar year of the account holder’s death.

However, when the beneficiary realized the mistake, makeup RMDs were immediately taken and

the 4974(a) 50% penalty paid. The issue was whether the beneficiary may compute RMDs over

the beneficiary’s life expectancy or whether failure to take RMDs in the first couple of years

when they were required constituted an election of the five-year rule.

The IRS focused on the language of the IRA. The default rule under the IRA was the life

expectancy rule with the five-year rule being elective. The IRS concluded that the

beneficiary had done nothing to affirmatively elect the five-year rule and therefore

permitted the life expectancy RMD calculation.

The regulations impose a key date of September 30 of the calendar year following

the calendar year of death. If a beneficiary receives payment of his or her portion of the account

before the September 30 date, the beneficiary will be disregarded. Treas. Reg. §1.401(a)(9)-4,

Q-4, A-4(a). If the beneficiary named as of the account holder’s death disclaims in favor of a

successor beneficiary, the successor beneficiary’s life expectancy will control. Id. Interestingly,

the regulations specify that if a named beneficiary dies between the account holder’s death and

the September 30 date, the successors to the deceased beneficiary will use the deceased

beneficiary’s life expectancy to determine minimum distributions. Treas. Reg. §1.401(a)(9)-4, Q-

4, A-4(c). It does not make sense that a child could disclaim in favor of a grandchild whose

significantly longer life expectancy would then be used, whereas if the child were to die before

Page 8: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 6 -

the September 30 date, the grandchild would be stuck with the child’s life expectancy. Of course,

one might consider having the estate of the deceased child disclaim on behalf of the child. The

regulations, however, require disclaimer by the named beneficiary before death. Id.

The regulations make clear that one cannot go beyond the beneficiary designation

in the applicable document (i.e., plan or IRA document) to determine the beneficiary. Id. Thus,

an individual who is entitled to a portion of the account under a will “or otherwise under

applicable state law” is not a designated beneficiary. For example, if the designated beneficiary

(either by terms of the beneficiary designation or the applicable plan or IRA document) is the

estate of the account holder, an individual entitled to all or a portion of the estate by reason of a

will or intestacy laws will not be considered the beneficiary for purposes of calculating minimum

distributions. Rather, the estate will be considered the beneficiary. As described below, this

may have serious ramifications.

If an account holder dies before his/her required beginning date, the first

distribution calendar year is the year in which the initial distribution is required to be made to the

designated beneficiary (December 31 of the calendar year following the calendar year of death,

unless the surviving spouse is the sole beneficiary, in which case distribution may be deferred

until December 31 of the calendar year in which the participant would have attained age 70 1/2).

Treas. Reg. §1.401(a)(9)-5, Q-5, A-5(a).

With the above rules in mind, let’s examine the applicable distribution period for

certain beneficiaries.

(d) Spouse

If the spouse is the designated beneficiary, that spouse may always roll over his or

her interest in the plan or account into an IRA in his or her name, in which case the minimum

distribution rules apply to the spouse as the account holder. If a spouse will not complete a

rollover, there are several different rules that may applicable.

If the account holder passed away before his or her required beginning date and

the spouse is the sole beneficiary of the account, the spouse may defer commencement of

distribution until the end of the calendar year in which the participant would have reached

70 1/2. Treas. Reg. §1.401(a)(9)-3, Q-3, A-3(b). This rule only applies when the spouse is the

sole beneficiary of the account. However, if under Treas. Reg. §1.401(a)(9)-8, Q-2, A-2 the

spouse is one of several beneficiaries and his or her interest in the account is segregated during

the calendar year following the year of the participant’s death, the spouse will be deemed as sole

beneficiary of a separate account and this special deferral rule should apply.

If a surviving spouse is under 59 1/2 years of age and completes a rollover,

withdrawals taken before 59 1/2 are subject to the 10% penalty of IRC §72(t). Sears v. Comm’r

100 T.C.M. (CCH) 6 (T.C. 2010). Thus, a spouse under 59 1/2 may wish to wait until 59 1/2 to

complete the rollover so withdrawals may be taken by him or her before such time without the

10% penalty under §72(t)(2)(A)(ii) exception for distributions from a decedent’s account.

Under Treas. Reg. §1.401(a)(9)-4, Q-4, A-4(b), if the account holder dies before

his or her required beginning date, and the spouse does not rollover to an account of his or her

Page 9: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 7 -

own and the spouse dies before the end of the year the account holder would have attained age

70 1/2, then the beneficiaries of the spouse will be treated as beneficiaries for RMD purposes.

This is an unusual rule but does have a practical application in at least one setting. Assume the

surviving spouse is under 59 1/2 and does not wish to complete a rollover so that he or she may

take distributions from the decedent’s account free from the 10% penalty of IRC §72(t). In this

case, should the young surviving spouse die before the end of the calendar year the deceased

account holder would have been age 70 1/2, the spouse’s beneficiaries will be treated as

beneficiaries for RMD purposes.

Caution! Assume you are handling an estate of a deceased spouse who died after

his or her required beginning date designating the surviving spouse as beneficiary of an IRA.

Even though there is no time limit during which a rollover must be completed, your delay in

processing the rollover carries with it some risk. If the surviving spouse dies before he or she

completes the rollover, the children of the couple will be forced to take RMDs over the

remaining life expectancy of the surviving spouse. Instead, had a rollover been accomplished

before the surviving spouse’s death (and the children designated as beneficiaries of the IRA), the

children would have been able to take RMDs over their respective life expectancies. The IRS

has long had the position that the estate of a surviving spouse may not complete a rollover. PLR

9237038.

If the account holder dies after the required beginning date with the spouse as the

sole beneficiary of the account, and the spouse does not complete a rollover, the applicable

period for the distribution will be the spouse’s life expectancy, recalculated annually; but, after

the spouse’s death, that life expectancy will revert to the remaining unrecalculated life

expectancy of the spouse. Treas. Reg. §1.401(a)(9)-5, Q-5, A-5(c)(2). If the spouse is one of

several beneficiaries of the IRA, this special treatment will only apply if the separate account

rule of Treas. Reg. §1.401(a)(9)-8, Q-2, A-2 applies.

To the extent the surviving spouse is the beneficiary of the working spouse’s

account, he or she may roll over all or any portion of the death distribution to an IRA in his or

her name. I.R.C. §408(d)(3)(C). If the surviving spouse is the sole beneficiary of the participant’s

IRA and has the unlimited right to withdraw amounts from that IRA, the spouse may elect to

treat the IRA as his or her own for minimum distribution purposes. This election may be made

at any time after the minimum distribution (if the participant was beyond his or her required

beginning date) for the calendar year of death has been made. Treas. Reg. §1.408-8, Q-5, A-5.

The election may be made by the surviving spouse redesignating the account into his or her

name, by missing a minimum distribution applicable to a surviving spouse beneficiary under the

regulations, or by making contributions to the account. It is interesting to note that the above

cited regulations pertaining to the election will not apply when a trust is the beneficiary of the

IRA, even if the surviving spouse is the sole beneficiary of the trust. A series of Private Letter

Rulings, issued prior to the regulations, permitted allocation of an IRA from a trust or estate to

the surviving spouse to facilitate a rollover because, in those rulings, the spouse had the

unilateral right to withdraw the IRA from the trust or estate. Recently issued Letter Rulings

confirm the rollover through an estate or trust in certain circumstances. See discussion later in

my outline. Further, the rollover may occur even though prior installments may have been paid

to the working spouse during his or her lifetime.

Page 10: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 8 -

Moreover, in Private Letter Ruling 95-24-020 (Mar. 21, 1995), a surviving spouse

in a non-community property state exercised her right to a “forced share” of the estate and

thereafter exercised her power to choose assets included in the forced share in order to allocate

the retirement benefit to herself. The ruling allowed her to roll over the account to an IRA in her

name.

Private Letter Ruling 200634065 contained a statement by the IRS broadly

interpreting the ability of the surviving spouse to complete a rollover through a trust or an estate.

In this case, the decedent’s IRA was payable to his estate. The decedent’s wife was the sole

beneficiary and personal representative of the estate. The wife’s plan was to have the custodian

distribute the IRA to the estate and from the estate to the spouse and, finally, from the spouse to

a rollover IRA within 60 days of the initial distribution. The IRS noted the distinction between

an inherited IRA (not eligible for a rollover) and the exception to the inherited IRA for payment

to a surviving spouse under IRC §408(d)(3)(C)(ii). The IRS then dealt with the statement in the

final §401(a)(9) regulations pertaining to the surviving spouse’s ability to elect to treat the

decedent’s IRA as his or her own. The IRS noted that this type of election is only available if the

surviving spouse is the sole beneficiary of the IRA with an unlimited right to make a withdrawal.

In addition, the IRS noted the statement in the regulations that the surviving spouse will not be

able to elect to treat the decedent’s IRA as his or her own if the beneficiary of the IRA is a trust

(even if the surviving spouse is the sole beneficiary of the trust). The IRS went on to

differentiate this language from the situation where the surviving spouse actually receives the

distributed IRA funds through an estate or trust and concluded as follows:

[A] surviving spouse who actually receives a distribution from an IRA is

permitted to roll that distribution over into his/her own IRA even if the spouse is

not the sole beneficiary of the deceased’s IRA as long as the rollover is

accomplished within the requisite 60-day period. A rollover may be

accomplished even if IRA assets pass through either a trust and/or an estate.

(Emphasis added.)

In LR 200915063, an IRA was payable to a revocable living trust where the decedent

died prior to his required beginning date. The surviving spouse was the sole trustee of the living

trust. The IRA custodian advised the surviving spouse to pay the IRA to a taxable trust account.

Less than sixty days later, the surviving spouse, in her capacity as trustee, requested that the

custodian reverse the distribution back to the decedent’s IRA. The custodian declined. In this

private letter ruling, the IRS permitted (i) allocation of the IRA distribution to the revocable

portion of the revocable living trust, (ii) extension of the rollover period under IRC §408(d)(3);

and (iii) rollover by the surviving spouse into an IRA in her name.

See the discussion of additional private letter rulings in this area at Section 1.3(2), below.

Interestingly, the IRS has issued more than sixty private letter rulings approving

“indirect rollovers” where an estate or living trust was the designated beneficiary of an IRA or

retirement plan and the surviving spouse as beneficiary or fiduciary had the power and

control to allocate the IRA or retirement plan to him or herself. Even though this concept has

been around for years, there may be a theory which does not require that the surviving spouse

actually have this type of control. Under IRC §402(c)(9) and 408(b)(4)(ii) a distribution

Page 11: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 9 -

received by an account holder which is rolled into an IRA or a qualified plan within sixty days

is a qualified rollover. IRC §402(c)(9) goes on to state that “if any distribution attributable to

an employee is paid to the spouse of the employee after the employee’s death, the preceding

provisions of this subsection shall apply to such distribution in the same manner as if the

spouse were the employee”. In other words, this statute seems to say that any amount of an

account attributable to a decedent spouse which is ultimately paid to the surviving spouse may

be rolled over by the surviving spouse even if the payment was initially made to an estate or a

trust. It should be noted that the IRS has picked up this rationale at least once in PLR

200703035. Also, this rationale appears in the preamble to the final regulations under IRC

1.401(a)(9) and 1.408-8.

(e) Nonspouse individual beneficiary

If the employee dies after the required beginning date and an individual who is

not the account holder’s spouse is the designated beneficiary, the maximum distribution period

will be the designated beneficiary’s life expectancy (determined with reference to the

beneficiary’s birthday in the calendar year following the calendar year of the account holder’s

death) and using the tables under Treas. Reg. §1.401(a)(9)-9, Q-1, A-1. The applicable

distribution period will be reduced by one for each calendar year elapsing after the calendar year

following the account holder’s death. Treas. Reg. §1.401(a)(9)-5, Q-5, A-5(c).

For example, assume the surviving spouse passes away naming the couple's only

child as beneficiary and that the child's attained age in the year following the surviving spouse's

death is 45. Under the single life table of Treas. Reg. 1.401(a)(9)-9, Q-1, A1, the divisor will

start at 38.8 to be reduced by one year for each calendar year elapsing after the calendar year

following the surviving spouse's death. This is known as a "stretch-out" IRA because the

minimum distributions are so small.

(f) Non-individual (or no) designated beneficiary

Under the regulations, only individuals and certain trusts may be designated

beneficiaries for the purposes of creating a distribution period. Treas. Reg. §1.401(a)(9)-4, Q-3,

A-3. This rule can cause problems when the participant’s estate is the beneficiary. If the

participant died before his or her required beginning date, the estate as beneficiary will trigger

application of the five-year rule, under which distribution must be complete by the calendar year

containing the fifth anniversary of the participant’s death. (Note: The 2009 calendar year does

not count due to the RMD Holiday of §408(a)(g)(H). This could extend the five year period

another year.) Treas. Reg. §1.401(a)(9)-3A(b), Q-2, A-2. If, by contrast, the participant died

after the required beginning date and the estate was the designated beneficiary, distribution may

be made over the remaining life expectancy of the account holder without recalculation. Treas.

Reg. §1.401(a)(9)-5, Q-5, A-5(c)(3). The above rules would also apply when a charity or a trust

that is not a “qualified trust” is designated beneficiary.

In Private Letter Ruling 2003-43-030 (July 31, 2003), the decedent (who died

after his required beginning date) died without designating a beneficiary of his IRA. Under the

IRA custodial account agreement, the decedent's estate was the beneficiary. The decedent's three

children were equal residual beneficiaries of the estate. A daughter asked the I.R.S. to approve

Page 12: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 10 -

the segregation of her one-third share of the IRA and a subsequent IRA-to-IRA transfer to a new

IRA custodian. The I.R.S. permitted the segregation and the IRA-to-IRA transfer; provided,

however, that this process did not result in a "stretch-out". Rather, the daughter was required to

take minimum distributions over the decedent father's remaining life expectancy. The same result

was reached in Private Letter Ruling 201128036.

See the discussion of LR200846028 under the “Reformation” heading under

Trusts as beneficiaries, below.

(g) Multiple beneficiaries

If, on the last day of the calendar year following the participant’s death, there are

several beneficiaries of the account and the account has not been separated as described below,

the beneficiary (as of September 30th of that year) with the shortest (or no) life expectancy will

be used to determine minimum distributions. Thus, if several children were beneficiaries of the

account, then, absent the separate account treatment, the life expectancy of the oldest child,

unrecalculated, would be used to determine distributions from the account. If a charity or estate

were one of several beneficiaries, absent corrective action (i.e., division into separate accounts

before the end of the calendar year following the calendar year of death), the account holder

could be deemed to have died without a designated beneficiary. Treas. Reg. §1.401(a)(9)-5, Q-7,

A-7.

As mentioned above, the rules that focus on the beneficiary with the shortest (or

no) life expectancy may be significantly mitigated in most events through timely compliance

with the separate account rule of Treas. Reg. §1.401(a)(9)-8, Q-2, A-2.

(h) Separate accounts/quasi-separate accounts

The regulations permit a single account to be divided into separate accounts, each

having different minimum distribution rules, as long as separate accounting, including allocating

investment gains and losses, is established. Treas. Reg. §1.401(a)(9)-8, Q-2, A-2(a). If there are

separate IRAs (or separate accounts as per the regulations), different minimum distribution rules

may apply with respect to each such account. The segregation must occur no later than the end of

the calendar year following the calendar year of death. Id.

Practice Tip: If after the participant’s required beginning date a spouse (or trust for a spouse)

who is more than ten years younger than the participant and other beneficiaries

will be named, the separate account for that beneficiary should be established

prior to the calendar year for which separate account treatment is sought.

The importance of separate IRAs (or accounts) cannot be overstated. From a

minimum distribution standpoint, each individual beneficiary will, after the participant’s death,

have a maximum deferral period equal to his or her own unrecalculated life expectancy.

Moreover, each beneficiary will have the right to use that deferral or take earlier distributions as

each he or she chooses. Each beneficiary will have the right to make his or her own investments.

Finally, each beneficiary could select his or her own custodian of the decedent's IRA, through an

IRA-to-IRA transfer. See Priv. Ltr. Rul. 2000-08-044 (Dec. 3, 1999). Note: The IRA account is

Page 13: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 11 -

still "owned" by the decedent, for the benefit of the beneficiary; only a spouse as beneficiary can

transfer the decedent's IRA to the spouse's own IRA.

The regulations make clear that the separate account treatment is not available to

beneficiaries of a trust. Treas. Reg. §1.401(a)(9)-4, Q-5, A-5(c). Thus, if a qualified trust is a

beneficiary and that trust divides into equal shares for the deceased account holder’s children, the

life expectancy of the oldest child will determine minimum distributions, even if the IRA is

segregated into separate IRAs for each separate trust fund. The planner could likely avoid this

rule by including, in the IRA beneficiary designation itself, a direction to divide the IRA into

separate and equal IRAs for each trust fund.

In Private Letter Rulings 2003-17-041 through 2003-17-044 (Dec. 19, 2002), the

I.R.S. took a very harsh approach with regard to separate share treatment for separate trust funds.

In those rulings, one trust was designated as beneficiary of the IRA. However, both the

beneficiary designation language and the trust language allowed for division into separate trusts

for each of the decedent's three children. Essentially, the I.R.S. stated in the ruling that because

the separate trusts and shares were not automatically established at death, separate share

treatment was not available and each trust's maximum distribution period would be measured

with respect to the oldest child. The IRS followed this approach in LRS 200634068, 200634069

and 200634070. The only way to avoid the result of this ruling would be to direct the trustee (in

the trust document) to establish the three separate trusts effective at death and , in the beneficiary

designation, set forth a required division of the IRA into separate IRAs for each of the trusts. In

other words, all fiduciary discretion should be taken out of the equation. Even if this occurs, it is

not clear from these rulings that separate share treatment would apply. The I.R.S. might still

argue that because the separate trusts were not technically in existence at death, separate share

treatment is not available.

It should be noted that an IRA beneficiary designation giving multiple

beneficiaries fractional interests in the account may take advantage of the separate account rules,

as most states require fractional gifts to receive a pro rata share of income, appreciation,

depreciation and the like. However, the practitioner should take care using pecuniary formulas

in an IRA beneficiary designation. If the practitioner wishes to set up separate account

treatment, the language of the IRA beneficiary designation must state that the pecuniary gift will

receive its share of appreciation, depreciation, income, and the like.

There is now a concept that practitioners are referring to as the "quasi-separate

account." This situation usually occurs when an estate or trust has been designated as

beneficiary and the fiduciary later directs the IRA custodian to divide the IRA into separate

accounts, each payable to a separate beneficiary or trust fund. If dealing with a trust in which

both the trust document and beneficiary designation require division of the IRA into separate

IRAs (one payable to each separate trust fund), true separate account status will be achieved,

because, assuming each separate trust adequately deals with the qualified trust rules and

contingent beneficiary issue, the beneficiary of each trust will be used for minimum distribution

purposes. If, however, the segregation into separate IRAs is at the direction of the trustee

(without a requirement in the beneficiary designation itself), then true separate account status is

not achieved. In such a case, the oldest trust beneficiary’s life expectancy will control minimum

distribution calculations for all of the trusts after segregation. Priv. Ltr. Ruls. 2003-17-041

Page 14: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 12 -

through 2003-17-044 (Dec. 19, 2002), 2004-10-020 (Dec. 9, 2003), & 2004-44-033 (Aug. 3,

2004) (trustee directed segregation of an IRA into separate IRAs; one for each individual

beneficiary of the trust.). When the estate is designated as beneficiary and the personal

representative directs division of the IRA into separate shares for each of the estate's

beneficiaries, the I.R.S. will approve the division, but true separate share status is not achieved.

Rather, minimum distributions will be calculated with reference to the decedent's remaining life

expectancy (if the decedent died after his required beginning date) or under the five-year rule.

The most recent example of this is PLR 201208039. The account holder died

after her required beginning date naming her estate as beneficiary of the IRA. The estate poured

over to a trust and the trust ultimately was to be distributed to four children. The four children

wanted to divide the IRA into four separate inherited IRAs; one for each child. The IRS

approved the division by IRA-to-IRA transfer and the creation of the four inherited IRAs on a

tax-free basis. However, because the estate was the designated beneficiary, the account holder is

treated as having died without a designated beneficiary meaning that each of the four inherited

IRAs must be distributed by calculating RMDs based on the account holder’s life expectancy.

(i) Trusts as beneficiary (multiple beneficiaries and the “conduit trust”)

The practitioner should be aware that successfully using a trust as a beneficiary of

a retirement plan or IRA is a tricky proposition. The qualified trust rules described above must

be complied with and the practitioner must take care to avoid any problems with multiple

beneficiaries as described above. Moreover, there is a true economic concern. A spousal trust

(i.e., credit shelter or QTIP trust) should be compared with naming the surviving spouse as

outright beneficiary. When the surviving spouse is outright beneficiary, both the participant and,

after rollover, the participant’s spouse will each independently be able to use the liberal Uniform

Lifetime Table. After both husband and wife have died, assuming separate accounts, each child

will have his or her own unrecalculated life expectancy for distributions. This method provides a

very long “stretch-out.” In contrast, when a trust is the designated beneficiary, the participant

will be able to use the Uniform Lifetime Table while living, but after his or her death, the life

expectancy of the spouse will be all that is available.

There are other income tax concerns as well. If the trust is a “simple trust” under

income tax rules (i.e., the trust is required to distribute all of its income at least annually), the

interplay between the minimum distribution rules and the required income distribution is

important. The trust will only be required to distribute fiduciary accounting income. If the

minimum distribution is greater than the fiduciary accounting income, the trust must treat the

entire minimum as income in respect of a decedent, hence distributable net income. However, if

the trust only distributes the fiduciary accounting income portion of the minimum distribution, it

may only deduct that distribution and the balance of the minimum distribution will be taxed at

the trust’s rates.

Another factor with trusts as beneficiaries is the new 3.8% tax on investment

income which applies to a trust with “modified adjusted gross income” above $11,500 for 2013.

The tax is imposed on interest, dividends and other passive investments. IRA and retirement

plan distributions retained by a trust are not investment income but could push the trust above the

threshold exposing all of its investment income to the tax.

Page 15: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 13 -

Qualified Trust Rules. Under the RMD rules, there are two key issues the planner

must contend with; (i) the “qualified trust rules” and (ii) properly drafting the trust so as to

segregate a trust beneficiary whose life expectancy will be used determine RMDs to the trust. If

a trust is the beneficiary, the underlying beneficiaries of the trust may be considered designated

beneficiaries if the qualified trust rules of Treas. Reg. §1.401(a)(9)-4, Q-5, A-5(b), and A-6 are

met on a timely basis. To be timely, compliance must occur as follows:

• Assuming distributions will be made with reference to the Uniform

Lifetime Table during the participant’s lifetime, the qualified trust rules do

not need to be complied with until October 31 of the calendar year

following the calendar year of the participant’s death. Treas. Reg.

§1.401(a)(9)-(4), Q-6, A-6(b).

• If the participant’s spouse is more than ten years younger than the

participant, and the participant wishes to name a trust as beneficiary yet

look through the trust to treat the spouse as beneficiary in order to use the

actual joint life expectancy of the participant and the spouse, the qualified

trust rules must be met, presumably before the due date of any minimum

distribution to be so calculated. Treas. Reg. §1.401(a)(9)-4, Q-6, A-6(b).

The qualified trust requirements are fairly straightforward:

• The trust is a valid trust under state law, or would be but for the fact that

there is no corpus.

• The trust is irrevocable or will, by its terms, become irrevocable upon the

death of the participant.

• The beneficiaries of the trust who could be treated as designated

beneficiaries under the rules discussed below, are identifiable from the

trust instrument.

• The documentation required by Treas. Reg. §1.401(a)(9)-4, Q-6, A-6(a) or

(b) has been provided to the plan administrator (or IRA custodian) on a

timely basis.

To meet the documentation requirement, the account holder (or after death, the

trustee) must provide a copy of the trust instrument and agree to provide any trust amendment

within a reasonable time in the future. In the alternative, the following may be provided: (i) a list

of the beneficiaries (including remainder beneficiaries and the conditions of their entitlement),

(ii) a certification that the list is complete and correct, (iii) an agreement that, if the trust is

amended, corrected information will be provided, and (iv) an agreement to provide a copy of the

trust instrument upon demand.

The problem is this: if an individual has a general power of appointment over the

portion of the trust estate containing retirement assets, it could be argued that the trust lacks

identifiable beneficiaries and so the trust would not qualify. For example, a general power of

appointment may be exercised in favor of an estate or a charity (neither of which has a life

Page 16: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 14 -

expectancy for I.R.C. §401(a)(9) purposes). A special power of appointment would likely not

cause a problem provided that, at the time of death, the individual within the class with the

shortest life expectancy is identifiable. Would the mere fact that a much older individual could

be adopted into the class create a problem? Of course, these issues may be avoided by including

a limitation that the power holder may only exercise the power in favor of individuals younger

than the power holder.

In Private Letter Rulings 2002-35-038 through 2002-35-041 (June 4, 2002),

separate trusts were set up for each child of the decedent. Each child had a testamentary general

power of appointment over the balance of his or her trust remaining at death. However, the trust

did not permit the child to appoint to a non-individual beneficiary or an individual who would

have a shorter life expectancy than the decedent's oldest child. This arrangement satisfied the

qualified trust rules. According to one commentator, the exclusion was added after the death of

the account holder by way of court reformation. Commentary No. 136, PLRs 200235838

through 200235041 – Minimum Distribution and Trusts, STEVE LEIMBERG'S EMPLOYEE BENEFIT

AND RETIREMENT PLANNING NEWSLETTER (Leimberg Info. Serv.), Sept, 23, 2002 (hereinafter

Commentary 136). Compare this Private Letter Ruling 201021038 (described below) wherein the

IRS refused to give effect to a trust reformation for RMD purposes.

Which Trust Beneficiary is the RMD Beneficiary? Satisfying the qualified trust

rules is really a threshold requirement. Once these rules are satisfied one “looks through” the

trust to its underlying beneficiaries in order to apply the RMD rules. Recall that the rules

applicable to multiple beneficiaries state that the beneficiary with the shortest (or no life

expectancy) will control to determine RMDs to all multiple beneficiaries (unless separate

accounts are established). Therefore, in the context of a trust as beneficiary, look through

treatment causes the beneficiaries of the trust to be multiple beneficiaries. Therefore, a key

question is which trust beneficiaries (i.e., current and remainder) will be considered in the group

or “basket” of multiple beneficiaries for this test. Sadly, the regulations are not clear on this

point:

A person will not be considered a beneficiary for purposes of determining who is

the beneficiary with the shortest life expectancy . . . or whether a person who is not an individual

is a beneficiary merely because the person could become the successor to the interest of one of

the employee’s beneficiaries after that beneficiary’s death. However, the preceding sentence

does not apply to a person who has any right (including a contingent right) to an employee’s

benefit beyond being a mere potential successor to the interest of one of the employee’s

beneficiaries upon the beneficiary’s death. (Emphasis added.)

Treas. Reg. §1.401(a)(9)-5, Q-7, A-7(c)(1).

As a result, the regulations create a key issue: Which of the current and

remainder beneficiaries will be the multiple beneficiaries so as to pluck out the beneficiary with

the shortest or no life expectancy to be used to determine RMDs to the trust?

Conduit Trust Safe Harbor. The key safe harbor approach is commonly known as

the “conduit trust” although that term is not used anywhere in IRC §401(a)(9) or the regulations.

Rather, the conduit trust appears as an example under Reg. 1.401(a)(9)-5, QA7(c)(3) (Ex.2).

Page 17: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 15 -

This example tells us that a trust beneficiary will be treated as the sole beneficiary for RMD

purposes (hence, his or her life expectancy will be used to determine RMDs to the trust) if during

the lifetime of said beneficiary, any and all distributions or withdrawals from the account are

required, by the terms of the trust, to be distributed to said beneficiary. In other words, the

trustee does not have the opportunity to accumulate any amounts withdrawn or distributed from

the IRA. Here are some tips concerning this valuable safe harbor:

The conduit trust permits the trustee to leave the IRA intact, investing and

reinvesting its assets. The RMDs from the IRA will be determined with reference

to the conduit beneficiary’s life expectancy as though the conduit beneficiary

were the sole individual beneficiary of the account. In other words, the only

required distributions from the account to the conduit beneficiary will be each

year’s RMD. Amounts in excess of the RMD may be withdrawn by the trustee

and distributed to the conduit beneficiary in accordance with the terms of the trust

(e.g., for health, maintenance, education, support).

Conduits trusts are an excellent choice with regard to trusts for minor children.

Although there is no authority on point, there is absolutely no reason why

distributions made by the trustee to a guardian of a minor child would not be

treated as made to that child for conduit trust purposes.

The conduit trust may also be used for a “pot trust” for minor children wherein

the trustee has the discretion to sprinkle distributions among the decedent’s minor

children. So long as the trust requires the trustee to distribute any and all

withdrawals from the IRA or retirement plan to any one or more of the children,

the life expectancy of the oldest child should govern for RMD purposes.

Although not expressly stated in the regulations, use of IRA funds to pay trustee

expenses should not disqualify the trust as a conduit trust. In LR 200620026, a

trust was deemed to be a conduit trust even though IRA funds were used to pay

asset management fees of the trustee.

Of course, a conduit trust is not a good option for a “special needs trust” for a

disabled beneficiary. This is because the required distributions would likely

disqualify the disabled beneficiary from needs based assistance.

The conduit trust approach is not a good option for a Q-Tip or credit shelter trust

for a surviving spouse. In a Q-Tip trust, if the surviving spouse lives long

enough, the RMDs will grow and the surviving spouse will receive outright

distributions of an increasing larger portion of the IRA, hence defeating the

purpose of the Q-Tip trust in the first place. In the case of a credit shelter trust, as

the surviving spouse ages and RMDs grow, assets will shift to the surviving

spouse, hence increasing his or her gross estate.

The identity of the remainder beneficiaries is irrelevant to a conduit trust.

Therefore, the conduit trust beneficiary may be given an unlimited general power

Page 18: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 16 -

of appointment over trust assets exercisable by Will. Or, remainder beneficiaries

could include charities or charitable trusts.

Immediate Outright Remainder Safe Harbor (Sort Of). In Treas. Reg.

1.401(a)(9)-5, Q-7, A-7(c)(3) (Ex. 1) the trust in question allowed principal to be distributed to a

surviving spouse based on a standard set forth in the trust instrument. Upon the surviving

spouse’s death, the trust would terminate and be distributed to the children of the account holder.

The regulation concludes that the beneficiaries of such trust for RMD purposes will be the

surviving spouse and the children. In other words, the regulation did not speculate as to who

would be default beneficiaries in the event none of the children survived the account holder’s

spouse. Instead, the regulation focused on who would take the trust assets outright immediately

following the death of the surviving spouse. This approach was also taken by the IRS in Rev.

Rul. 2006-26, discussed below. In addition, the Service has taken this position in private letter

rulings such as LR 200610027 and 200843042, discussed below.

This approach is a form of “accumulation trust” for RMD purposes as the trustee

can accumulate or distribute the IRA with distribution according to the standards in the trust.

This immediate outright remainder approach can be simple or complicated. For

example, a trust that provides for the account holder’s sister for life and remainder outright to the

account holder’s children would result in those of the account holder’s sister and children living

on the account holder’s death being treated as beneficiaries for RMD purposes. Presumably, the

sister would be the oldest as among them. Therefor, her life expectancy would be used to

determine RMDs to the trust.

Here is another example: Discretionary trust for the account holder’s child until

he reaches 45 years of age at which time the trust will be terminated; provided, that if the child

dies before reaching age 45, the trust will be distributed outright to the heirs at law of the child.

Assume that, on the date of the account holder’s death, the child survives the account holder and

that, should the child die immediately following the account holder, the child’s uncle would be

his oldest “heir at law”. In this case, the life expectancy of the uncle would be used to determine

RMDs to the trust.

The immediate outright remainder approach is likely the best alternative for a

special needs trust for a disabled beneficiary. As described above, a conduit trust is not a viable

alternative in this case. However, you could design the trust so that, following the account

holder’s death, special needs distributions only are permitted to the disabled child and, upon his

or her death, the trust assets are distributed immediately and outright to the disabled child’s

siblings. In this case, the child and his or her siblings living on the date of the account holder’s

death will be the RMD beneficiaries of the trust. The life expectancy of the oldest of such group

will be used to determine RMDs to the trust.

The immediate outright remainder approach must be used with caution because

there is always the possibility that one or more of the remainder beneficiaries may predecease the

account holder thereby changing the analysis of who is the oldest beneficiary. This issue may be

addressed through “fire wall language” described below.

Page 19: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 17 -

Finally, and as mentioned above, the immediate remainder approach allows the

trust to accumulate distributions from the IRA, so it really is a form of what is often referred to

as a “accumulation trust”. Thus, the planner should include proper firewall language described

below.

There are a couple of interesting private letter rulings dealing with the immediate

outright remainder approach:

In LR 200610027 an IRA was payable to a trust for the benefit of a minor

grandchild. Discretionary distributions were permitted until the grandchild

reached age 25 at which time the trust would terminate and be distributed to the

grandchild. If the grandchild died before reaching 25, the assets would pass to the

grandchild’s heirs at law. At the time of the account holder’s death, the oldest of

the grandchild’s heirs at law who would be entitled to the trust in the event the

grandchild died before reaching age 25 was the grandchild’s father. Therefore,

the Service concluded that the father’s life expectancy would be used to determine

RMDs to the trust. Of course, this result could have been avoided through a

conduit trust.

In LR 200843042 the decedent’s son was the beneficiary of a trust that would

continue until the son reached age 40. If the son were to die before reaching age

40, the trust was to be distributed to the son’s children; or if none, his heirs at law.

At the time of the account holder’s death, the son had no children. Moreover, the

oldest heir at law of the son’s was his mother and so her life expectancy was used

to determine RMDs to the trust. Once again, this result could have been avoided

through the use of a conduit trust.

Accumulation Trust. If the trust is not a “conduit trust” then, for the RMD

analysis, the trust is an “accumulation trust” as the trustee has the power to accumulate all or a

portion of distributions taken from the retirement plan or IRA. As described above, the

immediate outright remainder approach may, if properly structured, sufficiently zero in on the

trust beneficiary to be used for RMD purposes. However, the drafter should give consideration

to “firewall language” in any accumulation trust that, for example, (i) precludes the exercise of

powers of appointment relative to a retirement plan or IRA assets (or limits the appointees to

individuals no older than the other beneficiaries of the trust), (ii) prevents an adopted individual

from becoming a trust beneficiary relative to IRA or retirement plan assets when that adopted

individual might be older than the stated beneficiaries of the trust, and (iii) precludes the use of

IRA or retirement plan assets for the payment of estate and other expenses.

A tough question with accumulation trusts is whether the trustee may have the

ability to use IRA or retirement plan assets to pay the deceased account holder’s debts, expenses

and estate taxes (or similar expenses of the trust beneficiary). Of course, the fear is that such

power will cause the “estate” to be within the group or basket of beneficiaries; and, because the

estate has no life expectancy, the Five Year Rule would apply if the account holder died before

his required beginning date (or distribution would be made over the balance of the account

holder’s unrecalculated life expectancy if the account holder died after his required beginning

date). If one is drafting an accumulation trust, this should be easy enough to plan for assuming

Page 20: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 18 -

the accumulation trust will have other assets to pay these types of expenses. The planner can

simply state that the IRA/retirement plan assets will not participate in payment of these expenses.

What happens if this issue was not addressed in the planning stage (i.e., crops up after death):

As an initial matter, the IRS has never formally (or informally through a

private letter ruling), disqualified a trust based on its ability to pay these

expenses of the decedent’s estate.

There are multiple private letter rulings which take the position that, so

long as the IRA is protected from claims of creditors, the estate could not

be considered a beneficiary of the trust because the trustee could not be

forced by the personal representative to participate in payment of

expenses. See LRs 200209057, 2004440031 and 200750019.

In the estate administration process, the estate could be removed as a

potential beneficiary simply by having its participation in these types of

expenses completed or released by the September 30th

date.

PLRs 200432027, 029 and 031 did not disqualify a trust simply because

the retirement benefits remained subject to payment of estate taxes after

the September 30th

date.

Allocation to Subtrusts. What if the beneficiary of the account is a trust which, pursuant

to the terms of said trust is to be divided among subtrusts? Reg. 1.401(a)(9)-4QA5(d) tells us

that the qualified trust requirements as well as the basket of beneficiaries issue must be analyzed

with respect to each subtrust to which benefits may be allocated. What if the trust contains

language stating that it is the decedent’s intent that, to the extent possible, retirement benefits be

allocated to one particular subtrust over another? (LR 199903050 still required all possible

recipient trusts to be analyzed whereas LR 200620026 required only the favored trust to be so

analyzed.)

As described above, Reg. 1.401(a)(9)-4QA5(c) makes clear that separate account

treatment is not available for beneficiaries of a trust. This is an important rule for the planner to

pay attention to:

If the account is payable to a living trust and a living trust is ultimately distributed

outright to the decedent’s children, the analysis is as follows: First, the trust will need to

be a qualified trust. Second, the basket of beneficiaries will be the decedent’s children

(assuming no other beneficiaries of the revocable trust). Thus, at the conclusion of trust

administration, the trustee can direct the IRA custodian to create separate inherited IRAs

from the decedent’s IRA; one for each of the decedent’s children. However, RMDs for

each of these inherited IRAs will be determined with reference to the life expectancy of

the oldest child. (See LRs 200634068, 200750019).

Of course, this result could be avoided by naming the decedent’s children as outright

beneficiaries of the IRA, in which case, they could divide the IRA after death to obtain

Page 21: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 19 -

separate account treatment under which each of their respective life expectancies would

be used for their respective inherited IRAs.

What if the revocable living trust breaks into separate trusts for the decedent’s children

following the decedent’s death? As described above, if the revocable living trust is the

designated beneficiary, both the revocable living trust and each child’s subtrust must be

analyzed under the above trust rules for RMD purposes. However, because the revocable

living trust itself is named, even if the children are deemed to be the sole beneficiaries,

true separate account treatment will not be obtained. The trustee will be able to cause

creation of separate inherited IRAs; one for each subtrust. However, RMDs with respect

to each said IRA will be determined with reference to the life expectancy of the oldest

child of the decedent.

The way to create pure separate account treatment under the above scenario would be

more specificity in the beneficiary designation. If the beneficiary designation requires

the account be divided into separate accounts in accordance with the separate account

rules; one for each of the trusts under the revocable living trust, then RMDs from each

inherited IRA will be calculated with reference to the life expectancy of the child

beneficiary of the trust to which it is payable (assuming, with respect to each said trust,

the child is the RMD beneficiary under the rules described in this outline, above).

Remember, an estate is a bad beneficiary. For example, if the decedent names an estate

as beneficiary and the Will provides that the estate is to be divided into separate trusts for

the decedent’s children, the results would be as follows: The personal representative of

the estate could cause the custodian to divide the IRA into separate inherited IRAs; one

for each trust. However, RMDs for each trust will be calculated as though the estate is

the beneficiary (Five Year Rule if the account holder died before his or her required

beginning date; remaining unrecalculated life expectancy of the account holder if the

account holder died after such date).

A better result could be obtained as follows: The beneficiary designation would require

that the IRA be divided into separate accounts; each payable to the trust established for

the child under the decedent’s Will. Assuming each said trust complies with all the trust

rules described above, and that the accounts are divided as required for separate account

treatment, RMDs from each separate inherited IRA will be calculated with reference to

the child beneficiary of the trust.

What if the decedent wants there to be multiple trusts for each child (e.g., GSTT exempt/

GSTT non-exempt)? Here is how to plan for this scenario: The Will or revocable living

trust could pass the trust balance (or estate residue) to a single trust which will be divided

between the GSTT exempt and GSTT non-exempt portion. Thereafter, each child will

have a GSTT exempt and non-exempt trust. If this overall trust is named as beneficiary,

and the trust rules described above are complied with for the overall and each underlying

trust, the oldest child of the decedent will be treated as the RMD beneficiary for each and

every GSTT exempt and non-exempt trust so created. Although this may not be the

optimal result for RMD purposes, it does provide significant flexibility by adding the

Page 22: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 20 -

retirement benefits to the “pot” for division between a GSTT exempt and non-exempt

share.

• Reformation.

Three Private Letter Rulings (LRs 200616039, 200616040 and 200616041) involved a

fact pattern under which the husband had an IRA of which he had designated his wife as primary

beneficiary and his daughters as contingent beneficiaries. The husband rolled the IRA to a new

custodian and directed the custodian to complete the beneficiary designations as with the

previous IRA.

The husband died after his required beginning date and the wife died soon afterward.

Shortly thereafter, the wife’s estate disclaimed the wife’s interest as primary beneficiary of the

husband’s IRA.

Because the second IRA custodian had not followed the husband’s instructions, his

daughters were not named contingent beneficiaries. Therefore, after the disclaimer, the State

Court reformed the beneficiary designation to include the daughters as contingent beneficiaries.

The reformation was based, in part, on an affidavit from the second IRA custodian stating that

the husband’s instructions that the second IRA be set up exactly like the first IRA had not been

followed.

Thereafter, the IRA custodian created two new f/b/o IRAs; one for each daughter.

The IRA approved (i) the disclaimer, (ii) the establishment of the two f/b/o IRAs by way

of IRA-to-IRA transfer and (iii) each daughter’s ability to compute RMDs over the life

expectancy of the oldest daughter.

Of course, it is very beneficial that the IRS recognized the reformation of the beneficiary

designation.

However, there are a couple of observations about these Letter Rulings:

• These rulings may be incorrect with regard to the use of the oldest daughter’s life

expectancy for RMD purposes. The LR cites the language in the §401(a)(9) regulations

that states that a person’s disclaimer between the date of death and the September 30th

date, eliminates the disclaimant as an RMD beneficiary. What the reviewer may have

missed, however, is additional language in the regulations that states that a person who

dies after the account holder but before the September 30th

date without disclaiming,

continues to be treated as the beneficiary as of the September 30 date without regard to

the identity of the successor beneficiary. Reg. 1.401(a)(9)-4Q-4A-4(c). In other words,

the correct answer was that the separate accounts could be established, but RMDs would

be required over the deceased wife’s life expectancy.

• Another interesting point is as follows: Even if the IRS were correct with regard to its

conclusion that the disclaimer by the wife’s estate changed the beneficiaries to the

daughters, it was incorrect in the conclusion that the life expectancy of the oldest

Page 23: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 21 -

daughter should be used. It appears that separate IRAs were created so that use of each

daughter’s life expectancies would have been permitted.

PLR 200707158 was a nasty situation. The account holder had two cousins (Cousin A

and Cousin B). The account holder designated cousin A's three children as beneficiaries of an

IRA. After the account holder's death, separate fbo or inherited IRAs were set up for each of

Cousin A's children. Cousin B sued Cousin A and his children arguing undue influence. After

conducting discovery and proceeding towards trial, a settlement was reached and court approved.

A judgment reformed the IRA beneficiary designation effective the date before the account

holder's death so that Cousin B would be the beneficiary of the IRA. In the private letter ruling,

the IRS confirmed that (i) the settlement did not constitute a taxable gift by Cousin A's children

to Cousin B, (ii) the transfer of the three inherited IRAs of Cousin A's children to an inherited

IRA for Cousin B pursuant to the settlement agreement, was not taxable and (iii) Cousin B

would be taxed on distributions from his IRA in the future.

In PLR 200742026, the account holder maintained an IRA with a beneficiary designation

naming his wife as primary beneficiary and daughter as secondary beneficiary. On a subsequent

beneficiary designation, the account holder again named his wife as primary beneficiary but, in

spite of a reminder from the IRA custodian, neglected to complete the secondary beneficiary.

The account holder died before signing the new form. There were two other very bad facts:

(i) the account holder's spouse predeceased him and (ii) the custodial account agreement

provided that, absent a designated beneficiary, the estate became the beneficiary.

The account holder's daughter was the sole beneficiary of the account holder's estate. In

the process of the probate, the account holder's daughter obtained a court order amending

the IRA beneficiary designation to name the daughter as beneficiary of the IRA.

The IRS cited Reg. 1.401(a)(9)-4, QA-1 which states that:

A designated beneficiary is an individual designated as a beneficiary under

the terms of the IRA or by an affirmative election of the IRA owner.

Moreover, the fact that an IRA owner's interest passes to a certain

individual under a Will or under otherwise applicable state law, does not

make the individual a designated beneficiary . . .

The IRS concluded that, because there was no designated individual beneficiary under

the above rules and the account holder died after the required beginning date, the RMDs

will be computed with reference to the account holder's life expectancy. In other words,

the court reformation was ignored.

LR 200846028. The account holder of an IRA died before his required beginning date.

The account holder’s beneficiary designation stated that the beneficiary was: as stated in

Wills.

The account holder’s estate plan was designed around a revocable living trust. Thus, the

account holder had a pour-over Will.

Page 24: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 22 -

Under the revocable living trust, specific bequests of real estate were made to certain

beneficiaries and the balance of the trust was to be divided and distributed among eight

individuals.

The trustee pursued and received a state court order interpreting the beneficiary

designation as a designation of the eight individual beneficiaries of the revocable living

trust. In short, the court order had the effect of moving the beneficiaries of the revocable

living trust into the IRA beneficiary designation as though they were direct beneficiaries

under the IRA beneficiary designation.

Of course, the stakes of this private letter ruling were high. If the state court order was

recognized by the IRS, the eight beneficiaries could each have separate IRAs and take

RMDs over the life expectancy of the oldest such beneficiary. If, on the other hand, the

language of the beneficiary designation was interpreted to specify the estate as

beneficiary, the entire IRA must be distributed within five years of the date of the

decedent’s death.

The IRS relied heavily on Reg. 1.401(a)(9)-4QA1 which states as follows:

The fact that an account passes to individuals under a will or otherwise

under applicable state law does not make that individual a designated

beneficiary unless the individual is designated as a beneficiary under the

plan.

Relying on the above, the IRS said that the court order was meaningless for RMD

purposes. Therefore, the estate would be treated as beneficiary and the five-year rule

applies.

PLR 201021038. Bad news for estate planners – IRS refuses to recognize trust

reformation for RMD purposes. The key facts involved in this private letter ruling were

as follows: Husband was the IRA account holder. Wife had predeceased husband. At

wife’s death, a bypass trust was created for husband with wife’s assets. The bypass trust

provided that, upon husband’s death, the trust would be divided into two equal trusts; one

for each of the couple’s children (“children’s trusts”). The children’s trusts were lifetime

trusts under which the child/trustee could make distributions of income and principal

based on MESH and an independent trustee could make distributions to the child’s

descendants. Each child had a lifetime and testamentary special power of appointment

(“SPOA”) under which permissible distributes included charities. The children’s trusts

were not structured as conduit trusts. Nor was there any appropriate “firewall language”

necessary for accumulation trusts under the RMD rules.

However, there was an odd statement of intent under which the trustor clearly desired

“stretch out” treatment under which RMDs from the IRA to the trusts would be computed

over as long a period as permissible. The problem with this language, however, is that it

was not specific as to whose life expectancy should be used nor was the trustee given any

authority to amend the trust.

Page 25: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 23 -

Husband died with the bypass trust named as beneficiary of the IRA. He died after his

required beginning date. After the husband’s death, the trustees filed for and obtained a

retroactive court-ordered trust amendment which essentially did two things: First, the

children’s trusts were converted to “conduit trusts” under which IRA distributions to the

trusts could not be accumulated. Rather, any distributions from the IRA would have to

be distributed to the child/beneficiary. Second, “firewall” language was added so as to

(i) remove charities from the appointees under the SPOAs, (ii) prohibit use of IRA funds

to pay debts and administration expenses, etc., and (iii) prohibit distribution of IRA funds

to descendants older than the oldest child.

It is interesting to note that had either approach been taken prior to death, such approach

would have worked. In other words, the approach taken in the reformation was a bit of

“belt and suspenders”.

The IRS took a hard line. Citing case law authority for the proposition that a reformation

of a trust is not effective to change the tax consequences of a completed transaction, the

IRS refused to recognize the trust reformation. As a result, it concluded that, without the

reformation:

Amounts distributed from the IRA to the children’s trusts could be accumulated;

and,

To these accumulations, charitable organizations are clearly authorized as

possible beneficiaries.

As a result of the above, the IRS concluded that, for RMD purposes, there was no

designated beneficiary which would mean that the RMDs to the trusts must be distributed

over the period of the husband’s remaining life expectancy. This all points to a troubling

trend.

For a while, the IRS seemed relatively willing to allow post-mortem corrections to RMD

situations. In PLRs 200616039 through 41, the IRS approved a reformation which

actually designated a contingent beneficiary. More recently, however, the IRS refused to

recognize a contingent beneficiary created by reformation. PLR 200742026. In PLR

200846028, the IRS refused to recognize a reformation of somewhat ambiguous language

in a beneficiary designation and, instead, treated the decedent’s estate as beneficiary.

Previous private letter rulings have allowed trust reformations for RMD purposes. See

Commentary Number 136, PLRs 200235038 through 200235041 – minimum

distributions and trusts, Steve Leimberg’s employee benefit and retirement planning

newsletter, September 23, 2002. It now appears that, at least the rulings department is

taking a harder line with regard to reformations. This position may be at odds with the

September 30th

“shake out” date concept. If a beneficiary can be eliminated for RMD

purposes between death and the shake out date, why can’t a trust reformation occur

which effectively eliminates charities, decedent’s estates and beneficiaries over a certain

age?

Page 26: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 24 -

In light of this private letter ruling, the best advice to practitioners is as follows:

Take great care in drafting a trust that will be the beneficiary of an IRA or retirement plan

account. You must make certain that you qualify the trust as a “qualified trust” under the

regulations and incorporate either the conduit trust approach or appropriate firewall

language. (This is really nothing new, but due to the IRS’s antagonism towards post-

death reformations, it is even more important.)

If one of these scenarios lands in your lap post-death, you need to advise the client that

the conservative approach would be that the situation cannot be fixed through a post-

death reformation. However, bear in mind that a private letter ruling such as that

discussed above is not necessarily the outcome if the matter were to be litigated. A more

aggressive client might decide to reform the trust but not submit for a private letter ruling.

If this is the case, you need to advise such client of the 50% penalty under IRC §4974 for

failure to take the full RMD in any particular year.

But wait! (PLR 201203033) The decedent designated a marital trust as beneficiary of a

qualified retirement plan account. The decedent’s wife was the only beneficiary of the

trust during her lifetime and, thereafter, the trust is to split into two trusts; one for each of

the decedent’s children. As to one child’s trust, the child was given the power to appoint

to anyone other than himself, his estate or the creditors of either.

Prior to September 30 of the calendar year following the decedent’s death, the child

partially released his power of appointment (releasing the ability to appoint to any non-

individual or any individual older than the surviving spouse).

Here is what the IRS concluded:

The trust is a qualified trust.

The beneficiaries of the trust will not include individuals older than the surviving

spouse.

Because the trust is a qualified trust, the non-spouse rollover rules allow for the

creation of an inherited IRA to receive a direct distribution of the retirement plan

account. The inherited IRA will be f/b/o the marital trust.

RMDs from the inherited IRA will be computed with reference to the spouse’s

life expectancy.

Slayer Statute

PLR 201008049. In this case, the designated IRA beneficiary lost the right to his benefits

under a states slayer statute. Apparently, there was not a contingent beneficiary so the

court ordered that, pursuant to the decedent’s will, a “rightful beneficiary” was the taker.

Page 27: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 25 -

Even though the slayer statute treats the slayer as having predeceased the decedent, the

decedent did not actually predecease for RMD purposes, the slayer’s life expectancy will

be used for RMD purposes. However, the 50% penalty for failure of the rightful

beneficiary to take RMDs (as she did not control the IRA through the course of the

estate’s litigation) and the negligence penalty were waived as well.

(j) Beneficiary’s right to name a beneficiary/transfer account

Assume that both husband and wife have died and a child is the beneficiary of a

“stretch-out” IRA. As discussed above, minimum distributions will be computed with reference

to the child’s life expectancy. If the plan or IRA document so provides, the beneficiary may

designate who will receive the undistributed account following the beneficiary’s death. The

recipient would be subject to the same minimum distribution rules as the deceased beneficiary.

Treas. Reg. §1.401(a)(9)-5, Q-7, A-7(c)(2).

Moreover, even though the surviving spouse is the only beneficiary who may roll

over an IRA (and therefore restart the minimum distribution rules), a nonspouse individual

beneficiary may transfer the decedent’s IRA from one custodian to another in a direct IRA-to-

IRA transfer as long as the account remains in the decedent’s name “f/b/o” the beneficiary, and

the minimum distribution rules applicable to that account do not change. See Priv. Ltr. Rul.

2000-2408-044 (Dec. 3, 1999). As well, a formally unsegregated IRA may be segregated by the

beneficiaries, and custodian-to-custodian transfers may thereafter occur with respect to the

segregated IRAs. Id. The ability to transfer from one IRA custodian to another can be quite

valuable. If one institution will not work efficiently with the family (i.e., permitting a

beneficiary to designate a death beneficiary, etc.), the account may be moved in a trustee-to-

trustee transfer. It is interesting that there is no code section permitting the trustee-to-trustee

transfer, for this power comes solely from the regulations. Treas. Reg. 1.408-8, A-8. Again, the

key to the trustee-to-trustee transfer is that the funds may not be distributed to the IRA

beneficiary.

In Private Letter Ruling 2003-43-030 (July 31, 2003), the decedent (who died

after his required beginning date) died without designating a beneficiary of his IRA. Under the

IRA custodial account agreement, the decedent's estate was the beneficiary. The decedent's three

children were equal residual beneficiaries of the estate. A daughter asked the I.R.S. to approve

the segregation of her one-third share of the IRA and a subsequent IRA-to-IRA transfer to a new

IRA custodian. The I.R.S. permitted the segregation and the IRA-to-IRA transfer, provided,

however, that this process did not result in a “stretch-out.” Rather, the daughter was required to

take minimum distributions over the decedent father's remaining life expectancy.

In another ruling, a son was named as beneficiary of his deceased mother’s IRA.

Mistakenly, following his mother’s death, the IRA was distributed to the son and a Form 1099-R

(Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance

Contracts, etc.) was issued to the son. Immediately the son transferred the funds to an IRA at

another financial institution in the name of the mother, deceased account holder for the benefit of

the son. The I.R.S. ruled that even though the financial institutions involved later agreed to treat

the entire transaction as an IRA-to-IRA transfer, the son would be taxed on the IRA. Priv. Ltr.

Page 28: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 26 -

Rul. 2002-28-023 (Apr. 15, 2002). This error stresses the importance of a nonspouse beneficiary

never touching IRA funds when the IRA is moved from one institution to another.

In yet another ruling, a taxpayer instructed the administrators of his retirement

plan to liquidate his account and directly transfer the proceeds to an IRA in the taxpayer’s name.

All of the paperwork necessary to complete this transaction was submitted to the Plan

Administrator. Before liquidation of the assets and the transfer could occur, however, the

taxpayer died. The taxpayer’s nonspouse beneficiaries requested a ruling that would permit the

direct rollover to occur because all the paperwork had been concluded before the taxpayer’s

death. The I.R.S. ruled that the rollover could not occur. In short, the Service concluded that for

the rollover to be valid, all of the steps, including the actual transfer of assets, would have to

have taken place while the taxpayer is alive. Priv. Ltr. Rul. 2002-04-038 (Oct. 30, 2001).

In one case, the account holder of an IRA removed the funds from his IRA and

transferred them into a nonqualified annuity through American Express Life Insurance

Company. Of course, the following year he received an I.R.S. Form 1099-R reporting the

amount as income. The taxpayer did not report the income on his return. After the I.R.S.

contacted the taxpayer, the financial institution prepared a corrected Form 1099-R and moved the

annuity funds into a qualified IRA annuity. The Tax Court had no sympathy for the taxpayer and

held that the corrective action was not sufficient, thus requiring the taxpayer to include the

amount in his income in the year of withdrawal. Crow v. Comm’r, 84 T.C.M. (CCH) 91 (2002).

Note that the above disallowed IRA rollovers (except possibly the Crow case)

would not likely be treated more favorably by a "kinder and gentler" I.R.S., which now has the

authority to grant "waivers" for failure to meet the 60-day deadline for reasons of "hardship," as

described in Revenue Procedure 2003-16, 2003-1 C.B. 359. E.g., Priv. Ltr. Rul. 2004-07-023

(Nov. 7, 2003); Priv. Ltr. Rul. 2004-07-025 (Nov. 17, 2003); Priv. Ltr. Rul. 2004-04-056 (Oct.

27, 2003). The "waiver" rulings deal with fact patterns where the recipient could make the

rollover, but did not do so correctly or in a timely manner. Nonspouse death beneficiaries cannot

do a rollover in the first place.

(k) Non-Spouse “Rollover”

Prior to the Pension Protection Act of 2006, a surviving spouse beneficiary of a

qualified retirement plan could roll the decedent’s account into an IRA in the surviving spouse’s

name. However, only the surviving spouse was permitted this opportunity. The new law permits

a “rollover” by non-spouse beneficiary of a retirement plan account to an “f/b/o IRA.” The f/b/o

IRA will then be subject to the RMD rules applicable to non-spouse beneficiaries. If a trust is the

beneficiary of the retirement plan, the trust may complete such a rollover. The trust must be a

“Qualified Trust” under the §401(a)(9) regulations to do so.

Under IRC §402(f)(2)(A), beginning in 2010, retirement plans are required to

offer the non-spouse rollover.

• The IRS issued Notice 2007-7 to provide some additional detail concerning non-spouse

rollovers. According to the Notice:

Page 29: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 27 -

• The retirement plan does not have to offer the non-spouse rollover option. This is

surprising (and perhaps wrong) in light of the wording of the new statute. IRC

§402(c)(11)(A) which was amended by the 2008 Pension Act requires tax-

qualified retirement plans to offer the non-spouse rollover for plan years

beginning after December 31, 2009. Until then, offering the non-spouse rollover

is up to the sponsoring employer.

• The recipient IRA must be established in a manner that identifies the deceased

individual and the beneficiary (i.e., "Tom Smith as beneficiary of John Smith").

• If a trust is the beneficiary and wishes to complete the non-spouse rollover, the

Notice states that said trust must meet the requirements of a qualified trust of

1.401(a)(9)-4Q&A-5.

• Unfortunately, the Notice takes the position that the RMD rules applicable to the

non-spouse beneficiary under the retirement plan will likewise apply with regard

to the IRA. This will not make a difference if the decedent dies after his or her

RBD (note, however, that many plans postpone the RBD to actual retirement for

employees who are not 5% owners).

If the decedent dies before the RBD, and the terms of the plan have elected the

five-year RMD rule, according to the Notice, the beneficiary cannot get out of the

five-year rule by completing the non-spouse rollover. For example, the plan

might state that, following death, the beneficiary must take a lump sum

distribution sometime before the end of the fifth calendar year following death.

This would be viewed as an election of the five-year rule by the plan which

apparently could not be changed by the non-spouse rollover.

In IRS employee plan news issued on February 13, 2007, there was a softening

of the foregoing point. If, under the plan, the five-year rule applies for

determining RMDs because the account holder died before his or her required

beginning date and the plan in question has elected the five-year rule, the non-

spouse beneficiary may escape the five-year rule if (i) the plan allows the non-

spouse rollover and (ii) the rollover is completed before the end of the calendar

year following the calendar year of the participant's death.

In PLR 200717022, the IRS stated that, for the non-spouse rollover rules to apply,

a plan need only be amended in time to permit the rollover. In other words, having the language

in the plan at the time of the account holder's death should not be required.

See PLR 201203033 for a non-spouse rollover to an Inherited IRA for a trust.

(i) Excess distributions

If amounts are distributed in any calendar year in excess of the minimum required

distribution, no credit will be given in subsequent years for that distribution. Treas. Reg.

§1.401(a)(9)-5, Q-2, A-2. However, when a distribution is actually made to the participant during

Page 30: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 28 -

the first distribution calendar year (rather than on the succeeding April 1), amounts so distributed

will be credited toward the required distribution to be made on or before the participant’s

required beginning date.

(m) Penalties for failure to meet MDIB

There are penalties for failing to meet the minimum required distribution under

both the minimum distribution incidental benefit (MDIB) and the minimum distribution rules.

The 1986 Act amended §4974 to impose on the payee, effective in 1989, a 50 percent tax on the

amount by which the retirement plan fails to satisfy the minimum distribution rule or the MDIB.

The penalty may be waived if the shortfall was due to reasonable error. Treas. Reg. §54.4974-2,

Q-7, A-7.

Under prior instructions to IRS Form 5329, the 50% penalty of IRC §4974(a) for

failure to timely withdraw an RMD could be waived for reasonable cause (defined in the

regulations), but only if the failure was reported on IRS Form 5329 and accompanied by

payment of the penalty amount. In other words, the IRS got the money first and the reasonable

cause waiver was really in the form of a request for a refund. Under the revised instructions

issued for the 2007 5329, a waiver request may be made on Form 5329 without payment of the

penalty amount.

(n) Liquidity planning

From the tax and investment perspectives, it is generally desirable to take full

advantage of the I.R.C. §401(a)(9) rules in order to maximize the income-tax-deferred growth of

the account. A prudent plan gives the working spouse, nonworking spouse, and the couple’s

children the flexibility to take minimum distributions over the maximum time period allowed

under I.R.C. §401(a)(9). The rules of §401(a)(9), however, allow income, but not estate tax,

deferral. With proper planning, described below, the estate tax marital deduction will be

allowable with respect to the account. Thus, no estate tax will be due on an account until the

death of the surviving spouse.

Upon the death of the surviving spouse, the rules of I.R.C. §401(a)(9) may allow

the beneficiaries to defer distributions for a significant additional period. However, the

beneficiaries may be required to withdraw a substantial portion of the account if there is no other

source of funds available to pay the estate taxes. Withdrawals are, of course, subject to the

imposition of income taxes. Accordingly, clients often wish to provide another source of liquid

assets with which to pay estate taxes on the death of the surviving spouse. A common source is

an irrevocable life insurance trust that holds second-to-die policies of insurance on the lives of

the spouses.

(2) Income in respect of a decedent (IRD)

Both the right to a lump sum distribution and the right to an installment or annuity payout

are treated as income in respect of a decedent (IRD) under I.R.C. § 691. M. Carr Ferguson et al.,

FED. INCOME TAX’N OF ESTATES, TRUSTS AND BENEFICIARIES (3d ed. 1998 & Supp. 2005). As a

general rule, IRD is taxed to the recipient in the year of receipt. I.R.C. §691(a)(1). However, the

imposition of the income tax is accelerated if an IRD item is transferred within the meaning of

Page 31: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 29 -

I.R.C. §691(a)(2). The rule constitutes a serious trap that the planner must take into account. The

transfer of an item of IRD in satisfaction of a pecuniary bequest, including a formula marital

deduction bequest, may subject the item to the income tax.

A recipient who includes a retirement PLAN distribution in gross income is allowed an

income tax deduction to the extent the distribution gave rise to an estate tax. I.R.C. §691(c).

However, if the death distribution is a lump sum distribution, the deduction reduces the amount

subject to special income tax averaging. I.R.C. §691(c)(5).

(3) Early distribution penalty, I.R.C. §72(t)

Distributions made before the working spouse attains the age of 59 1/2 are generally

subject to a 10 percent penalty under I.R.C. §72(t). However, distributions made to the

participant’s death beneficiary are not subject to the penalty. I.R.C. §72(t)(2)(A)(ii). This is true

even if distributions are made to the beneficiary in installments from the deceased participant’s

account. Priv. Ltr. Rul. 90-04 -042 (Nov. 6, 1989). This is also true even when the surviving

spouse transfers the deceased’s interest to an IRA in the deceased’s name and commences

distributions as beneficiary (rather than owner) of the IRA. Priv. Ltr. Rul. 94-18-034 (Feb. 10,

1994). In Private Letter Ruling 2001-10-033 (Dec. 13, 2000), the I.R.S. permitted a surviving

spouse to roll over the decedent’s IRA more than two years after the decedent’s death and after

the surviving spouse had taken distributions from the decedent’s IRA under the exemption from

the 10 percent penalty. See also Charlotte and Charles T. Gee, 127 T.C. 2006. However, if a

surviving spouse under 59 1/2 years of age is the death beneficiary and rolls the funds into an

IRA in his or her name, subsequent distributions from the IRA are subject to the 10 percent

penalty tax. Sears v. Comm’r, 100 T.C.M. (CCH) 6 (T.C. 2010).

The 10% penalty may be avoided, however, with proper planning under the equal

payment exception of I.R.C. §72(t)(2)(A)(iv). Under that provision the penalty tax does not

apply to a distribution that is made as part of a series of substantially equal periodic distributions,

made annually or more frequently, for the life or the life expectancy of the participant or for the

joint lives or joint life expectancies of the participant and his or her designated beneficiary. What

constitutes a series of substantially equal periodic payments is defined in I.R.S. Notice 89-25,

1989-1 C.B. 662.(4) Roth IRAs/§401(k) Accounts

A detailed discussion of Roth Accounts is beyond the scope of this chapter. However,

Roth Accounts differ greatly from regular IRAs and §401(k) Accounts in three key respects: (1)

contributions to Roth Accounts are made on an after-tax basis; (2) qualified distributions from

Roth Accounts are income tax-free; and (3) no minimum distributions from a Roth IRA are

required during the joint lifetime of the account holder and the account holder’s spouse, if the

surviving spouse effectuates a rollover, so that minimum distributions only begin after the death

of the Roth IRA account holder and spouse. I.R.C. §408A(a); I.R.C. §408A(e); I.R.C.

§408(A)(d)(3)(E)(ii). In sum, an individual can, within the Roth IRA rules of §408A and Roth

§401(k) rules, establish a Roth Account with after-tax contributions, allow those contributions to

grow on an income-tax-free basis, defer distributions until the death of the individual and his or

her spouse and, when minimum distributions commence to the couple’s children, they will be

income tax free so that the growth on the Roth Account is never subject to income tax.

Page 32: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 30 -

A key element of Roth planning is the ability to convert a regular IRA to a Roth IRA.

Under the Roth IRA rules, an individual with a regular IRA who meets the income limitation

described below may cause all or any portion of the IRA to be distributed from the regular IRA

and thereafter contributed to a Roth IRA. There is no limit on the amount that may be so

converted. The conversion, of course, triggers income tax on the regular IRA distribution. Roth

IRA conversions are not subject to the 10 percent penalty of I.R.C. §72(t). I.R.C.

§408A(d)(3)(A)(ii). However, as a condition for escaping the 10 percent penalty, the taxpayer

may not take distributions from the Roth IRA for a period of five years. I.R.C. §408A(d)(3)(F).

The most attractive element of a Roth conversion is the fact that the legislation allows the

income tax resulting from a conversion to be paid with funds other than the converted IRA. In a

sense, through the Roth IRA conversion process, Congress is allowing the taxpayer to contribute

to the Roth IRA the income tax liability associated with the regular IRA. Stated another way, the

entire converted IRA, as opposed to the converted IRA net of income tax, is allowed to pick up

the Roth IRA benefits (e.g., no minimum distributions and no income tax on distributions). For

this reason alone, individuals with significant wealth inside and outside a regular IRA and who

have the ability to keep their adjusted gross income within the required conversion limits should

consider a Roth conversion.

The Roth conversion may be an excellent planning tool in many circumstances. In the

case of an individual who has significant wealth both inside and outside the IRA and who has not

yet reached his required beginning date, a Roth conversion may be attractive. By capturing the

income tax liability on the IRA at an early date, deferring minimum distributions until the death

of the second spouse, and allowing all tax-free buildup to escape income taxation altogether in

the hands of the children, the conversion may create the greatest economic benefit to the family.

Under rules pertaining to §401(k) plans, if the §401(k) plan so permits, the participant

may designate that all or any portion of his or her §401(k) salary reduction contribution be

treated as a Roth contribution. A Roth §401(k) account is treated the same as a Roth IRA with

the exception that RMDs are required during the account holder’s lifetime. Of course, the RMDs

could be escaped by taking a distribution from the Roth §401(k) and rolling it into a Roth IRA.

Moreover, under the Pension Protection Act of 2006, an individual may complete a Roth

conversion by directing a rollover from a regular qualified retirement plan account (including a

§401(k), §403(b) or §457(f) plan) directly into a Roth IRA.

Under the Tax Reform Act of 2012, if a §401(k) plan permits, a participant may elect to

convert a regular §401(k) plan account to a Roth §401(k) account (paying the income tax in the

process).

Moreover, a non-spouse beneficiary of a qualified retirement plan may complete a non-

spouse rollover to a Roth IRA (paying the income tax in the process).

Under current law, an inherited IRA may not be converted to a Roth IRA, although this

will likely be changed.

As mentioned above, effective in 2010, the rules for converting a regular IRA to a Roth

IRA have been liberalized. Under current law, a regular IRA can be converted to a Roth IRA or

Page 33: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 31 -

a non-spouse beneficiary of a retirement plan may roll into a Roth IRA. The conversion of an

IRA (or non-spouse rollover) will trigger income in the year of conversion in the amount of the

converted account. Prior to 2010, taxpayers with adjusted gross income in excess of $100,000

could not make a Roth conversion or non-spouse rollover. Effective in 2010, the income ceiling

is repealed. Moreover, for IRA conversions occurring in 2010, the income caused by the

conversion will be taxed one-half in 2011 and one-half in 2012 (or, at the taxpayer’s election, be

included as 2010 income). If the taxpayer is under 59½ years of age, the income from the

conversion will not be subject to the 10% penalty of IRC §72(t), so long as the tax on conversion

is paid with funds outside the IRA and no distributions are taken for five years. Post-conversion,

only “qualified distributions” may be taken from the Roth account on a tax favored basis.

Qualified distributions are those made after the taxpayer is 59½, distributions made to a death

beneficiary, distributions attributable to the taxpayer’s disability or distributions that qualify for

certain special purposes (e.g., first time home buyer). IRC §408A(d)(2)(A). However, any

distributions within five years of a contribution to a Roth IRA or conversion of a Roth IRA will

not be qualified distributions. See 408A(d)(2)(B) for the calculations of this five (5) year period.

Amazingly, the Roth IRA rules do not create an exception to this five-year rule in the case of

death. A non-qualified distribution is one that either fails to satisfy the five-year rule or the

triggering event requirement. If non-qualified distributions are made, there is no tax until the

total amount initially contributed by the taxpayer has been returned to the taxpayer. However,

under §408A(d)(3)(F) there may be a 10% penalty on amounts withdrawn within five (5) years

of a conversion by a taxpayer who is under 59½.

A taxpayer who converts a regular to a Roth IRA may later change his mind and “undo”

the conversion. If the taxpayer changes his mind about the conversion (i.e., the value of the IRA

declines post-conversion), generally, the deadline for a Roth IRA conversion to be

recharacterized to a regular IRA is the due date, including extension of the taxpayer’s 1040 (or,

October 15 of the year following the conversion). The law does not permit “cherry picking”

recharacterization within a single IRA. Thus, a smart Roth strategy is to segregate different

investments into different traditional IRAs by way of IRA-to-IRA transfers before the conversion

occurs. Thereafter, each separate IRA holding separate types of investment funds or investments

will be converted. Under current law, each separate IRA may be left converted or

recharacterized on a “pick and choose” basis by the October 15th

deadline giving the taxpayer

significant flexibility. Remember, if a taxpayer is over 70½ and beyond his/her required

beginning date, the RMD for the calendar year in question may not be converted to a Roth IRA.

Rather, it must be distributed before the conversion.

Of course, the decision to convert a regular IRA to a Roth IRA is tricky. Of course, the

longer the Roth account remains undisturbed, the more likely there will be a benefit to the

conversion. Therefore, conversions while husband and wife are both alive and with a joint life

expectancy of at least 15 years, can make a lot of sense; provided they will not have a need for

the funds. Conversion in years where a taxpayer will be in a low income tax bracket or has

business or other ordinary losses also makes sense, so long as there is no near term need for the

funds. Conversion should also be considered in years where a taxpayer might make large

charitable contributions. One might even consider conversion close to death if the converted

IRA will be left to a generation-skipping trust for grandchildren which is a “qualified trust”. By

doing this, the income tax will be removed from the estate and, if the trust is properly structured,

RMDs from the account will be measured based on the grandchild’s life expectancy.

Page 34: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 32 -

Effective in 2013 there is a 3.8% “surtax” on net investment income (capital gains,

dividends, interest, annuity payments, royalties). This tax is triggered when an individual, estate

or trust’s “MAGI” (modified adjusted gross income) is over a certain threshold. The threshold is

currently $250,000 for married couples, $11,500 for estates and trusts. The tax is imposed on the

lesser of the investment income or MAGI over the threshold. IRA and retirement plan

distributions are not investment income; however, they do go into the calculation of MAGI. An

individual with high investment income may wish to consider a Roth conversion so as to front

load all of the MAGI associated with the IRA into one year.

There is a misconception that estate planning with Roth IRAs is easier than with regular

IRAs. These guidelines should be considered:

Of course, Roth accounts should be left to a surviving spouse so as to permit the rollover

and avoid any lifetime RMDs.

Roth accounts left to a credit shelter trust or a Q-Tip trust are a bit of a waste as the tax-

free growth will be shut down fairly rapidly (i.e., based on the life expectancy of the

surviving spouse). In short, no stretch out will be available under this scenario.

As with traditional IRAs, it should be possible with proper planning, to use a non-pro rata

division of the community property to have the Roth pass to the surviving spouse in

exchange for other assets passing to a credit shelter trust.

Roth accounts left to children will be subject to the same RMD rules as regular IRAs.

That is, smart planning suggests creation of separate accounts post-death and stretch out

RMDs keyed to each beneficiary’s life expectancy under Treasury regulations.

Trusts which are beneficiaries of Roth accounts need to be structured as “conduit trusts”

or accumulation trusts with appropriate firewall language so that RMDs will be computed

with reference to the trust beneficiary’s life expectancy. In other words, all of the RMD

complexities of trusts as IRA beneficiaries apply to Roth IRAs in the same way as regular

IRAs. Remember, even though qualified distributions to a trust from a Roth IRA will not

be income for tax purposes, a portion will be income for fiduciary accounting purposes.

An estate should not be the designated beneficiary of a Roth account. This is because the

post-death RMDs will be calculated with reference to the deceased account holder’s

remaining life expectancy.

Unlike traditional IRAs, Roths should not be left to charity because the income tax has

already been paid.

§13.3 ESTATE TAX

On the death of the working spouse, his or her community property interest in the account

is includible in his or her gross estate under I.R.C. §2039. However, if his or her interest passes

to the surviving spouse, it may qualify for a marital deduction under I.R.C. §2056. The key

planning question is how the included amounts will be coordinated with the client’s estate plan.

Page 35: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 33 -

Generally, the surviving spouse will roll over the account to an IRA. This will defer the estate

taxes on the funds until the surviving spouse’s death.

Under the Tax Reform Act of 2012, the $5 million gift, estate and generation skipping

tax exemptions were made permanent. So was the ability to transfer the deceased spouse’s

unused estate tax exemption (“DSUE”).

The high death tax credit means it is more likely that high net worth clients wishing to

fully fund the credit shelter trust of the first spouse to die may need to involve their

retirement plans or IRAs.

To preserve flexibility, it is likely that planners will rely heavily on disclaimers.

Under IRC §2010(c)(2) the DSUE of the first spouse to die may be transferred to the

surviving spouse for use in his or her estate provided that an election is made in the estate

of the first spouse to die. The election requires timely filing of a federal estate tax return.

This provision might be helpful for couples with large retirement accounts as the account

could pass to the surviving spouse (instead of a credit shelter trust) without loss of the

federal death tax exemption of the first spouse to die. Of course, this is not available for

Washington state estate tax purposes.

Over the years, practitioners have questioned the inclusion of IRAs and retirement plan

benefits in estate plans without some discount or adjustment for the income tax associated with

those accounts on distribution following death. In Tech. Adv. Mem. 2002-47-002 (July 16,

2002), the I.R.S. explicitly rejected any such discount, even if the estate needed withdrawals to

meet cash needs. Tech. Adv. Mem. 2004-44-021 (June 21, 2004). See also Smith v. United

States, 391 F.3d 621 (5th Cir. 2004) and Estate of Davis Kahn, (2005) 125 T.C. No. 11..

If the nonworking spouse is not a citizen of the United States, it is very difficult to obtain

the income tax benefits of the rollover and the estate tax benefits of the estate tax marital

deduction. First, the surviving spouse must be the beneficiary of an account to be able to roll it

over into an IRA in her name. Second, to qualify for the marital deduction the arrangement must

meet the requirements of I.R.C. §2056A. In Private Letter Ruling 96-23-063 (Mar. 13, 1996), the

surviving spouse, who was not a U.S. citizen, rolled over the decedent’s account to an IRA in her

name and entered into an agreement with the IRA custodian to comply with the I.R.C. §2056A

qualified domestic trust rules. The I.R.S. allowed the marital deduction. The qualified domestic

trust (QDT) regulations contain specific rules concerning qualification of an IRA or retirement

plan for QDT treatment. E.g., Treas. Reg. 20.20 26A-4(b)(7)(iii).

(1) Disclaimer

Estate plans are often designed so that a qualified disclaimer under I.R.C. §2518 may be

used to modify a plan after the death of the transferor. For example, a client may wish to allow

flexibility as to how much and exactly what assets will be used to fund a credit shelter trust. A

client who wishes to leave this decision to his or her surviving spouse can leave everything

outright to the surviving spouse and provide that any property that the surviving spouse disclaims

will pass to a credit shelter trust. However, note that the surviving spouse can only disclaim the

Page 36: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 34 -

working spouse’s share of an account — the surviving spouse cannot disclaim his or her own

interest in it. The regulations specifically address the impact of disclaimer. Treas. Reg.

§1.401(a)(9)-4, Q-4, A-4(a) permits a change of beneficiary for minimum distribution purposes

by reason of disclaimer.

Note that if the surviving spouse disclaims in favor of one or more of the couple’s

children, the minimum distributions will be driven by the beneficiaries resulting from the

disclaimer. If the entire account is disclaimed in favor of the children, then the children are the

only designated beneficiaries. If, by December 31 of the calendar year following death, the

account is divided as per Treas. Reg. §1.401(a)(9)-8, Q-2, A-2(a), the children will each have

their own life expectancy to compute minimum distribution. The account could be so divided by

the December 31 date to facilitate separate distribution periods and the spouse could rollover his

or her portion of the account.

Qualified disclaimers of retirement plan benefits and IRAs require careful predeath

planning. In the context of an IRA, the practitioner should review the custodial account

agreement itself to make sure a disclaimer will be recognized. Retirement plans involve issues of

plan language as well as spousal rights under ERISA. The beneficiary designation should

contemplate disclaimer or death of the surviving spouse. Thus, for example, the primary

beneficiary could be the spouse, with the instruction that any portion disclaimed by the spouse

would pass to the credit shelter trust, and the secondary beneficiary (to take in the event the

spouse is deceased) would be the couple’s children.

A question of key concern with respect to postmortem estate planning has been the

interplay between the required minimum distribution (RMD) of a deceased account holder who

had lived beyond his or her required beginning date and the concept of “acceptance” under the

disclaimer regulations. For example, assume a widow, age 75, named her child as primary

beneficiary of an IRA with a trust for a grandchild named as secondary beneficiary. Also assume

that, in the calendar year of death, the widow had not taken her RMD. Now the child is

contemplating disclaiming all or a part of his or her interest in favor of the trust for the

grandchild. Under the disclaimer rules, absent an “acceptance,” the child will be able to make the

disclaimer decision as late as nine months after the widow’s death. However, assume the widow

died in December so that the RMD for the year of death must occur by the end of the year (long

before the disclaimer decision must be made). The question is whether the RMD could be paid to

the child without the child being deemed to have “accepted” the IRA, thus cutting off the

disclaimer opportunity. According to Revenue Ruling 2005-36, 2005-26 I.R.B. 1368, the

primary beneficiary may take the RMD without being deemed to have accepted the IRA. The

ruling notes that the primary beneficiary should take both the RMD and postdeath earnings on

the RMD amount.

In PLR 201125009, automatic distributions of the deceased spouse’s RMDs were made

into a joint account held by the surviving spouse and the decedent which had already passed to

the surviving spouse under joint tenants with right of survivorship. The surviving spouse died

shortly after these deposits were made and the estate of the second spouse to die paid the account

to the estate and thereafter sought to disclaim not only the IRA but the RMD deposits that had

previously been made. Consistent with Revenue Ruling 2005-36, the IRS approved the

Page 37: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 35 -

disclaimer of the remainder of the IRA but concluded that the RMDs had been accepted by way

of the automatic deposit into the spouse’s account.

Even after this Revenue Ruling, the planner should take care to avoid an “acceptance” in

the processing of the RMD. Quite often, an IRA custodian will insist that, as a precedent to

taking the RMD, the primary beneficiary must go through the process of changing the account

from the decedent’s name into a “beneficiary” or “f/b/o” account in the name of the primary

beneficiary. Under the logic of the Revenue Ruling, this should not be a problem. However, this

type of reregistration process should be avoided if possible.

If the IRA is later to be segregated into separate IRAs under the separate account rules,

there does not need to be a reconciliation with regard to the RMD. In other words, the primary

beneficiary may, in the I.R.S.’s eyes, retain the full RMD amount.

Although not explicit in the ruling, there is the possibility that a distribution taken by the

primary beneficiary other than an RMD could be treated likewise. For example, under the logic

of this ruling, the primary beneficiary could take a withdrawal from the IRA and be treated as

having accepted that amount without accepting the entire IRA. Of course, to avoid a problem, the

practitioner would clearly document with the custodian that only the distribution is being

accepted.

The Revenue Ruling’s results are not contingent upon whether a disclaimer is structured

as a pecuniary or a fractional disclaimer. Either way, the primary beneficiary may retain the

RMD (and postdeath earnings), yet disclaim a pecuniary amount or fraction of the underlying

IRA.

Although not addressed in the ruling, the planner should give careful consideration to

how the separate IRAs will be “funded” after disclaimer. For example, if there is a pecuniary

disclaimer, the safest course of action may be a liquidation of the assets of the IRA so that the

separate IRAs may be funded with actual dollar amounts. In the case of a fractional disclaimer, it

may be safest to have the holdings of the IRA divided according to the fractions established

through the disclaimer. Otherwise, the disclaimant might be viewed as having exercised control

over the disclaimed assets following the disclaimer.

(2) Funding the credit trust; non-pro rata distribution planning

Under IRC §2010(c)(2) the DSUE of the first spouse to die may be transferred to the

surviving spouse for use in his or her estate provided that an election is made in the estate of the

first spouse to die by way of a timely filed federal estate tax return. This provision might be

helpful for couples with large retirement accounts as the account could pass to the surviving

spouse (instead of a credit shelter trust) without loss of the federal death tax exemption of the

first spouse to die. Of course, this is not available for Washington state estate tax purposes.

Example: Assume Jim and Sally have $8 million of community property comprised of

Jim’s $6 million IRA and $2 million of other assets. Assume Jim’s Will leaves his share of the

probate community assets to a credit shelter trust for Sally’s benefit and his IRA beneficiary

designation names Sally as outright beneficiary. At Jim’s death, Sally rolls the IRA into her

name and Jim’s $1 million interest in the other assets passes into a credit shelter trust for Sally’s

Page 38: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 36 -

benefit. Also assume that a federal estate tax return is filed for Jim’s estate transferring the

DSUE to Sally. When Sally dies, her estate will be $7 million comprised of her interest in the

other assets ($1 million) plus the $6 million IRA. She will have her $5 million federal death tax

exemption and, assuming Jim’s estate made the proper election, she will have the balance of

Jim’s unused exemption ($4 million) for total exemptions of $9 million. Therefore, no federal

estate tax will be owing. However, if Jim and Sally were Washington residents, there will be an

estate tax of $720,000. If instead, Jim’s estate employed the non-pro rata funding technique

described below to fund Jim’s credit shelter trust with the entire $2 million of other assets, the

Washington estate tax would have been decreased by $170,000.

Of course, another alternative to utilizing the DSUE of the first spouse to die yet, at the

same time, allowing the retirement assets to pass to the surviving spouse is the non-pro rata

funding technique described below.

In a community property state, a non-pro rata division of the former community property

and funding of the credit shelter trust is a technique to get the best of both worlds: a more fully

funded credit shelter trust and the income tax advantages of allocating all of the retirement

benefits to the surviving spouse. Here are the key pre-death and post-death steps involved in this

technique:

Pre-Death.

The account holder spouse designates the non-account holder spouse as primary

beneficiary with the proviso that should the non-account holder spouse disclaim,

the disclaimed proceeds will be payable to the credit shelter trust (or the estate of

the account holder spouse or a revocable living trust established by the couple).

The Will of the non-account holder spouse should include a provision stating that

the community property interest of the non-account holder spouse will pass

outright to the account holder spouse unless he or she disclaims in which case it

will pass as part of the non-account holder spouse’s estate.

The key estate planning documents (Will and/or revocable living trust) must

contain strong non-pro rata division and funding powers. Washington law gives

these powers to trustees under our general trust act and also gives these powers to

personal representatives by incorporation of the trust powers act. However, it is

advisable that the drafter include the power of the personal representative of the

estate, trustee of a revocable living trust and/or trustee of the credit shelter trust to

agree with the surviving spouse to a non-pro rata division of the former

community property (both probate and non-probate) and non-pro rata funding of

the credit shelter trust. The documents should also state that, in this process, it is

the testator’s desire that retirement benefits be allocated to the surviving spouse.

Steps to be Taken After Death.

After the death of the account holder, the surviving spouse will disclaim a

sufficient fraction of the IRA so as to permit a “swap” under which the surviving

Page 39: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 37 -

spouse’s community property interest in non-IRA assets may be exchanged for

the credit shelter trust’s interest in the disclaimed IRA. For example, assume the

couple owed a $2 million brokerage account and the husband had a $2 million

IRA (as a community property asset). Following death of the husband, his estate

would own a $1 million interest in the brokerage account and the wife would own

the other $1 million interest in the brokerage account. The wife would then

disclaim the husband’s one-half interest of the IRA ($1 million) so now the trust

has the right to the $1 million brokerage account and a $1 million interest in the

IRA. Then, the wife would in her capacity as personal representative of the estate

and trustee of the credit shelter trust, exchange the trust’s $1 million interest in the

IRA for the wife’s $1 million interest in the brokerage account. As a result, the

trust will have the $2 million brokerage account and the wife will have the $2

million IRA.

After the disclaimer, the spouse in his/her individual capacity and his/her

fiduciary capacity will enter into a “funding agreement” setting forth the non-pro

rata funding.

Thereafter, the spouse will apply to the IRA custodian for rollover or direct

rollover of the decedent’s IRA into an IRA in his or her name.

If the non-account holder spouse dies first, the process is the same as described

above (the surviving account holder spouse disclaims, completes a funding

agreement and, thereafter, simply retains ownership of the IRA). (Examples of all

of this language can be found in the appendices.) Note, technically a non-account

holder spouse’s community property interest in a retirement plan vanishes upon

his or her death. See the “Community Property” section below. Thus, the non-

pro rata technique may not be available when the non-account holder dies and the

retirement benefit in question is the account holder’s retirement plan.

There is no citable binding precedent that the foregoing swapping is income tax

free. However, the technique should fall within the protection of Revenue Ruling

76-83, 1976-1 C.B. 213 which stands for the proposition, generally, that the

division of former community property on a roughly equal basis is income tax

free. Two previous private letter rulings have approved the non-pro rata funding

involving revocable living trusts. PLR 199925033 and PLR 199912040.

Recently, the IRS again approved the non-pro rata “swapping” in a community

property state where the beneficiary of the decedent’s IRA was the account

holder’s estate and the estate thereafter poured over into trusts under the

decedent’s revocable living trust instrument. This is the equivalent of a situation

wherein a Will creates testamentary trusts. See PLR 201125047.

Of course, in the process of this non-pro rata funding, someone other than the spouse (the

estate, revocable living trust or credit shelter trust) ends up (on a temporary basis) as the

beneficiary of a portion of the IRA. As a result, the surviving spouse’s rollover is

actually a rollover through the entity. As described above, actually having the money

flow through the entity can be avoided by having the spouse directly apply for

Page 40: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 38 -

distribution following the disclaimer and the funding memorandum. However, some

states require that the disclaimer be given to the IRA custodian. In these cases, the

custodian may refuse to make payment directly to the spouse and instead may make

payment to the entity. Thereafter, the spouse will take distribution from the entity and

roll it over within 60 days. This is often referred to as a “indirect rollover”. The IRS has

issued a plethora of private letter rulings approving indirect rollovers where the surviving

spouse has the power and control as fiduciary to allocate and distribute the IRA to him or

herself. These rulings have been issued in the context of IRAs, retirement plans, living

trusts and estates. A broad sampling and brief description of these private letter rulings is

below. However, spousal control required by the IRS in these private letter rulings may

not actually be a legal requirement. IRC §402(c)(9) and 408(b)(4)(ii) state that an

account holder may take a distribution and roll it over within 60 days. IRC §402(c)(9)

goes on to state as follows:

If any distribution attributable to an employee is paid to the spouse of the

employee after the employee‘s death, the preceding provisions of this

subsection [rollovers] shall apply to such distribution in the same manner

as if the spouse were the employee.

The above language was echoed in the preamble to the final RMD regulation. It appears

that all the statute requires is that the amount attributable to the decedent be paid to the

spouse and there does not appear to be any prohibition on the payment coming through

an estate or trust. In fact, the preamble specifically states that a surviving spouse who

actually receives a distribution from the deceased spouse’s IRA is permitted to roll the

distribution over to his or her own IRA even if the spouse is not the sole beneficiary of

the deceased spouse’s IRA so long as the rollover is accomplished within sixty (60) days.

Thus, in looking at the private letter rulings that follow, bear in mind that the IRS may be

creating a requirement (spouse must have sufficient control to take the distribution

without the consent of any party) that may not exist.

In Private Letter Ruling 2000-32-044 (May 15, 2000), the estate was the designated

beneficiary of an IRA and a §403(b) annuity. The surviving spouse was the sole personal

representative of the estate and a one-third residuary beneficiary. The I.R.S. allowed the

surviving spouse to allocate the IRA and the §403(b) annuity to the surviving spouse in a “non-

pro rata distribution” in satisfaction of her one-third residuary beneficiary interest. The I.R.S.

also sanctioned the surviving spouse’s rollover of these benefits.

In Private Letter Ruling 2000-52-041 (Oct. 22, 2000), an IRA was payable to a revocable

living trust and the spouse had the right to remove the IRA. The service ruled that, following

removal, a rollover would be permitted. Although this Private Letter Ruling involved the pre-

2001 proposed minimum distribution regulations, it was issued after the 2001 proposed

regulations. In another set of facts reviewed by the I.R.S., the husband passed away without

naming a beneficiary of his IRA. The husband had died intestate. Under the laws of the state of

domicile, the wife was the sole beneficiary of an intestate estate. The wife was appointed

personal representative of the decedent husband’s estate. Under the IRA custodial account,

failure to designate a beneficiary resulted in the IRA proceeds being paid to the decedent’s

estate. The wife proposed to use her powers as personal representative to allocate the IRA

Page 41: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 39 -

proceeds to herself for rollover. In Private Letter Ruling 2001-29-036 (Apr. 23, 2001), the I.R.S.

approved the rollover. Unfortunately, at the end of the Private Letter Ruling the Service noted

that because the decedent passed away before the new minimum distribution regulations (issued

in 2001), the ruling did not address “any issues that may arise under the proposed regulations.”

In Private Letter Ruling 2003-46-025 (Aug. 21, 2003), the I.R.S. again ruled that the

surviving spouse may roll over an IRA when a living trust was the beneficiary and the spouse

had the unilateral power to allocate the IRA to herself. This ruling apparently confirmed that the

final regulations have not eliminated the indirect rollover technique.

Private Letter Ruling 200634065 contained a statement by the IRS broadly interpreting

the ability of the surviving spouse to complete a rollover through a trust or an estate. In this

case, the decedent’s IRA was payable to his estate. The decedent’s wife was the sole beneficiary

and personal representative of the estate. The wife’s plan was to have the custodian distribute

the IRA to the estate and from the estate to the spouse and, finally, from the spouse to a rollover

IRA within 60 days of the initial distribution. The IRS noted the distinction between an inherited

IRA (not eligible for a rollover) and the exception to the inherited IRA for payment to a

surviving spouse under IRC §408(d)(3)(C)(ii). The IRS then dealt with the statement in the final

§401(a)(9) regulations pertaining to the surviving spouse’s ability to elect to treat the decedent’s

IRA as his or her own. The IRS noted that this type of election is only available if the surviving

spouse is the sole beneficiary of the IRA with an unlimited right to make a withdrawal. In

addition, the IRS noted the statement in the regulations that the surviving spouse will not be able

to elect to treat the decedent’s IRA as his or her own if the beneficiary of the IRA is a trust (even

if the surviving spouse is the sole beneficiary of the trust). The IRS went on to differentiate this

language from the situation where the surviving spouse actually receives the distributed IRA

funds through an estate or trust and concluded as follows:

[A] surviving spouse who actually receives a distribution from an IRA is permitted to roll

that distribution over into his/her own IRA even if the spouse is not the sole beneficiary of the

deceased ’s IRA as long as the rollover is accomplished within the requisite 60-day period. A

rollover may be accomplished even if IRA assets pass through either a trust and/or an estate.

(Emphasis added.)This was repeated in PLR 201125047.

Here are more examples of the many Private Letter Rulings involving a rollover by a

surviving spouse where a trust (or estate) was named as beneficiary were issued:

• LR 200603032. In this private letter ruling, a trust was the beneficiary of an IRA. The

surviving spouse was sole trustee of the trust. The trust instrument gave the trustee the

power to withdraw the IRA and pay it to the surviving spouse. As trustee, the surviving

spouse proposed taking distribution of the IRA in the name of the trust then paying the

distribution over to the surviving spouse. Thereafter, the surviving spouse, in her

personal capacity, proposed rolling the amounts she received into an IRA.

The IRS stated that, although the regulations generally preclude a rollover if the IRA is

paid to the trust then to the surviving spouse (even if the spouse is the sole beneficiary of

Page 42: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 40 -

the trust), the rollover will be permitted under the facts of the ruling because the

surviving spouse was the sole trustee of the trust in addition to being the sole beneficiary

of the trust. This private letter ruling is a clear indication that previous letter rulings

issued by the IRS allowing “indirect rollovers” have not been revoked.

• LR 200603036. This private letter ruling involved a retirement plan payable to a trust for

a surviving spouse. Under the terms of the trust, the surviving spouse was entitled to all

of the income and trust principal for her health, maintenance, education and support. The

surviving spouse was sole trustee of the trust and represented to the IRS that, as trustee,

she had the power to direct payment of the total amount of the retirement plan directly

from the retirement plan to herself. The surviving spouse proposed to the IRS that she be

allowed to rollover this distribution. Following the logic of the preamble (and citing

Reg. 1.402(c)-2) the IRS stated that, even though the spouse was not the beneficiary of

the retirement plan, payment directly to the surviving spouse at the direction of the

trustee was enough to permit the surviving spouse to complete the rollover.

• LR 200605019. This letter ruling involved several IRAs, several problems and overall a

nasty situation. Nonetheless, the IRS permitted an indirect rollover of some IRA funds

(i.e., distribution to the trust then to the surviving spouse followed by a rollover) and

distribution of other IRA funds directly from the IRAs to the spouse at the spouse’s

direction as trustee of the trust. All were approved for rollover.

• LRs 200644028, 200644031 and 200705032. All of these rulings deal with indirect

rollovers by a surviving spouse:

• In LR 200644028, the decedent died after his RBD with an IRA. A trust was beneficiary.

The wife was the sole trustee and she proposed directing the custodian to do an IRA-to-

IRA transfer into an IRA in wife's name. The IRS permitted this under a narrow reading

of Reg. 1.408-8, Q-5A-5(a). The IRS interprets this regulation as preventing a spouse

from electing to treat the decedent's IRA as her own (but not preventing the spouse from

a rollover or IRA-to-IRA transfer).

• In LR 200644031, the decedent died after his RBD naming an estate as beneficiary of his

IRA. The surviving spouse was the sole personal representative and, after specific

bequests, the entire estate passed to the surviving spouse. Moreover, the IRS noted that

the surviving spouse had the right to make non-pro rata distributions in settling the

estate.

The surviving spouse proposed to allocate the IRA to the spouse in a non-pro rata

distribution and direct the custodian of the IRA to complete a direct IRA-to-IRA transfer

into an IRA in the surviving spouse's name.

The IRS noted that the surviving spouse could not, in these circumstances, elect to treat

the IRA as her own. However, if the surviving spouse actually receives the distribution,

she may roll it over, even if she is not the designated beneficiary. In this case, the IRS

treated the IRA-to-IRA transfer as such a rollover.

Page 43: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 41 -

• In LR 200705032, the decedent died naming his revocable living trust as beneficiary of

several IRAs. The revocable living trust provided for a marital deduction trust which was

funded with a pecuniary formula. Under the terms of the marital deduction trust, the

spouse had an absolute right to withdrawal principal. The spouse proposed to the IRS

that the IRAs be distributed to the trust and, thereafter, immediately distributed to the

spouse for rollover. Again, the IRS narrowly read Reg. 1.408-8QA5 so as to prevent a

spouse from electing to treat an IRA payable to a trust for the benefit of the spouse as his

or her own. Rather, the IRS stated as follows:

A surviving spouse who actually receives a distribution from an IRA is

permitted to roll that distribution over into his/her own IRA even if the

spouse is not the sole beneficiary of the deceased's IRA as long as the

rollover is accomplished within the requisite 60-day period. A rollover

may be accomplished even if IRA assets pass through either a trust and/or

an estate.

This ruling is also interesting from the standpoint that no mention was made of the

possibility of IRD acceleration by virtue of the allocation of the IRAs to the marital trust

in satisfaction of the pecuniary marital gift. Nonetheless, this is not a position the planner

should get him or herself into. If there is the possibility of allocating an IRA to a marital

bequest, the marital bequest should be structured as a fractional gift.

PLR 200704033 involved the reformation of a trust to permit a spouse the right to

allocate an IRA to herself without anyone's consent. Based on this, the spouse was permitted to

complete a rollover. (Also, in this ruling, there was a problem with the 60-day rollover period

which the IRS waived.)

PLR 200703047 also involved a reformation allowing two IRAs to be paid to the

surviving spouse. Also, the 60-day rollover deadline was botched in this private letter ruling and

the IRS permitted an extension.

In PLR 200703035 an estate was beneficiary, but the spouse was the sole personal

representative and had the right to allocate the IRA to herself. The rollover occurred by a

distribution from the account holder's IRA to a non-IRA account of the spouse. The non-IRA

account of the spouse was to be rolled into an IRA in the spouse's name within 60 days.

However, the 60-day time frame was missed. Again, the IRS approved the rollover and waived

the 60-day rollover deadline.

In PLR 200705032, the question was an independent trustee's allocation of an IRA to a

trust over which the spouse had a right of withdrawal. The IRS noted that this allocation was

consistent with the co-trustees' fiduciary obligations and permitted the spouse to rollover the IRA

following its allocation to said trust.

As a result of the above, the prudent course of action following death of the account

holder spouse and a disclaimer by the surviving spouse, may be to have the surviving spouse in

his or her individual capacity and as personal representative and trustee, to request an actual

distribution of the deceased spouse’s IRA to the surviving spouse. The surviving spouse would

Page 44: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 42 -

then rollover within the 60-day rollover period. In the non-pro rata settlement of the former

community property, non-IRA assets would be allocated to the credit shelter trust in exchange

for the portion of the IRA disclaimed by the surviving spouse. This may allow the practitioner to

be within the 1999 private letter rulings as well as make use of the theory that a spouse may

rollover a distribution made directly to him or herself at the direction of a trustee. The added

advantage to this approach is that the 1099 will be issued by the IRA custodian directly to the

surviving spouse which, of course, helps to prevent attracting unnecessary scrutiny from the IRS.

It should be noted that these 2006 letter rulings follow similar logic of a letter ruling issued late

in 2005 (LR 20054901).

In PLR 200938042, an IRA was payable to a testamentary trust for the surviving spouse

created under the decedent’s will. The surviving spouse disclaimed her interest under the trust.

Apparently, under the IRA beneficiary designation and custodial account, this caused the

beneficiary designation to “fail” so that, under the custodial account, the estate became

beneficiary. The surviving spouse thereafter sought to allocate the IRA from the estate to herself

as part of her outright bequest from the estate and requested the IRS to sanction the rollover.

The IRS ruled that because the residue of the estate passes outright to the surviving spouse and,

as a result of the disclaimer, the residue of the estate included the IRA, the spouse essentially

became the sole beneficiary of the IRA. The IRS noted that the surviving spouse may not elect

to treat the IRA as her own, but may, by an actual distribution, rollover the IRA into an IRA in

her name.

In PLR 200944059, the IRS declined to allow an indirect rollover. In this case, the IRA

was payable to a trust for a surviving spouse. She was the sole trustee and income beneficiary of

the trust. Distributions to the trust were permitted based on health, maintenance, education and

support. Nonetheless, she obtained a state court order allowing her to cause the IRA to be

distributed to the trust and then distributed to her. She asked the IRS for a ruling allowing her to

roll the funds into an IRA in her name.

The IRS stated that because she did not have unrestricted access to the IRA she could not

be treated as the IRA beneficiary for rollover purposes. Moreover, the IRS noted that distribution

of the IRA to the spouse would have constituted a gift from the remainder beneficiaries.

Based on IRC §402(c)(9) and the preamble to the RMD regulations, the IRS may be

wrong on this one.

(3) QTIP trust

As discussed previously, tremendous tax advantages can result if the nonworking spouse

is the outright beneficiary of an account. A client should forego these benefits only if significant

countervailing nontax reasons exist. For example, the working spouse may wish to prevent the

nonworking spouse from having direct control over the working spouse’s assets. In such a case,

the client may wish to create a credit shelter trust to be funded with the credit shelter amount and

a QTIP trust to be funded with the remainder of the working spouse’s estate. Because of the

income tax liability associated with the account, the planner will most likely want to name a

QTIP trust as beneficiary. Of course, a lump sum payment to the QTIP trust could easily qualify

Page 45: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 43 -

for the estate tax marital deduction. Priv. Ltr. Rul. 97-29-015 (Apr. 16, 1997). Dribbling out the

account to the QTIP trust, however, is a tricky task.

Any distribution from the retirement plan or IRA must comply with I.R.C. §401(a)(9). In

short, a minimum distribution must be made each year and the period of distribution must

comply with the rules of §401(a)(9). It is important to note that the I.R.C. §401(a)(9) minimum

distribution is not tied to the actual income earned by the account. In the early years of a

“dribble-out” distribution, it is typical for the minimum distribution required by §401(a)(9) to be

quite less than the actual income earned by the account. As discussed above, a trust should only

be designated as a beneficiary with great care.

Property qualifies for the marital deduction under the QTIP rules of I.R.C. §2056(b)(7)

only if (a) the surviving spouse is entitled to all of the income payable at least annually during his

or her lifetime, (b) the surviving spouse is the only one to whom any distributions can be made

during his or her lifetime, (c) the surviving spouse has the right to require the trustee promptly to

convert unproductive property to productive property, and (d) a proper election is made on I.R.S.

Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return.

Revenue Ruling 2000-2, 2000-3 I.R.B. 305, replaced and superseded Revenue Ruling

89-89, 1989-2 C.B. 231, with regard to qualification of an IRA as QTIP property when the IRA

is payable to a QTIP trust. Under the facts of the ruling, the decedent died before his required

beginning date and a testamentary QTIP trust was named as beneficiary of the decedent’s IRA.

The decedent’s wife was the income beneficiary of the QTIP trust and the decedent’s children

were the sole remainder beneficiaries of the trust. The testamentary QTIP trust fully complied

with the requirements of I.R.C. §2056(b)(7). In addition, language in the QTIP trust gave the

surviving spouse the power to demand that, in any year, the income of the IRA be withdrawn

from the IRA, passed through the QTIP trust, and distributed to the spouse. In the Revenue

Ruling, the I.R.S. noted that the QTIP trust was a “qualified trust” for determining minimum

distributions after the decedent’s death. The I.R.S. also stated that the beneficiaries taken into

account to determine minimum distributions were the surviving spouse and the decedent’s

children. This is consistent with Treas. Reg. §1.401(a)(9)-5, Q-7, A-7(c)(3)(Ex. 2). Because the

surviving spouse had the shortest life expectancy, minimum distributions to the trust would be

computed with reference to the life expectancy of that surviving spouse and were required to

begin on December 31 of the calendar year following the calendar year of the decedent’s death.

In structuring distributions to a QTIP trust, the requirements of the income and estate tax

rules must be satisfied. The I.R.S. provided important guidance in Revenue Ruling 2000-2. .To

satisfy the rules, the lawyer must study the distribution provisions of the applicable retirement

plan or IRA. Many IRAs permit virtually any type of distribution method and allow the account

holder or beneficiaries to make withdrawals of any amounts at any time, provided the §401(a)(9)

rules are satisfied. Some qualified retirement plans allow the death beneficiary the option of

accelerating and withdrawing the account at any time after the working spouse’s death. If the

planner is dealing with a document where such flexibility exists, meeting the requirements of

Revenue Ruling 2000-2 may be fairly easy. However, if the plan document is restrictive with

regard to distributions, it may be virtually impossible for the planner to structure the beneficiary

designation and QTIP trust language to satisfy the requirements of Revenue Ruling 2000-2.

Page 46: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 44 -

The IRS released Revenue Ruling 2006-26 which deals with the concept of “Q-Tipping”

an IRA. The Revenue Ruling builds upon Revenue Ruling 2000-2 by including an extensive

discussion of the interplay between various income and principal laws and the requirement that

all income be distributed to (or be subject to withdrawal by) the surviving spouse. Essentially,

situation 1 and situation 2 described in this new Revenue Ruling sanction Q-Tip treatment where

the trustee has the right to convert principal to income or to convert the trust to a 4% unitrust as

provided by RCW 11.104A.020 and RCW 11.104A.040. However, in regard to the power to

convert principal to income, the Revenue Ruling dealt with the Uniform Principal and Income

Act (“UPIA”) version of the law which states that only 10% of any distribution (i.e., an RMD)

will be considered income. In this regard, the IRS notes that the 10% figure will not satisfy the

income requirements for Q-Tip treatment. Therefore, the trustee must, under said UPIA

provision, exercise the authority to convert additional amounts to income. In response to

Revenue Ruling 2006-26, the Uniform Law Commission amended the revised Uniform Principal

and Income Act to provide the “trust within a trust concept” under which internally generated

income of the IRA (determined as if it were a separate trust) would be treated as income in the

case of a Q-Tip trust.

RCW 11.104A.180 was recently amended to provide the trust within a trust approach

(RCW 11.104A.180(b)). However, if the IRA does not generate or calculate income in such

fashion, four percent (4%) of the total value of the IRA will be treated as income. RCW

11.104A.180.

The Revenue Ruling also addresses which beneficiaries of the Q-Tip trust are taken into

account to determine the beneficiary with the shortest life expectancy. The IRS specifies that,

unless the Q-Tip trust is a “conduit trust” (which makes little sense in the context of a Q-Tip

trust) the beneficiaries will be the surviving spouse and the remainder beneficiaries.

Finally, as stated above, Q-Tipping an IRA has a tremendous income tax cost as

distributions, both during and after the surviving spouse’s life will be computed with reference to

the surviving spouse’s life expectancy. In short, the possibility to stretch out the IRA is lost.

Moreover, any portion of the RMDs accumulated by the trustee may be subject to tax at very

high trust income tax rates.

(4) Charity as beneficiary

If the account holder is charitably inclined, the best overall tax results may be achieved if

he or she leaves a retirement plan or IRA to a tax-exempt charity. Of course, this does not apply

to a Roth account because income taxes have already been paid. As charitable organizations are

exempt from income taxes, no income taxes will ever be imposed on the deferred income

represented by the account. However, the client will have to balance the benefits of making the

gift to charity against the significant additional economic growth that the client’s family might

enjoy over an extended distribution period if the account were left to them. In other words, from

a practical standpoint, naming the charity as beneficiary amounts to a gift of both the date of

death value of the account as well as the substantial future economic growth that is possible

under I.R.C. §401(a)(9). The planner should, of course, verify the exact name of the charity and

confirm that it is an exempt organization. Based on the author’s calculations, there are scenarios

in which the account holder’s children (or GSTT trusts for grandchildren) would be better off

Page 47: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 45 -

receiving IRA or retirement plan benefits, rather than cash or securities, because the power of

continued income tax-deferred growth is quite significant. Generally, this is the case when there

are sufficient nonretirement plan or IRA assets to pay estate taxes on the IRA or retirement plan

and the children will have the economic ability to take only minimum distributions for some

period of time.

Care should be taken in naming a charity as beneficiary of part of the account. A charity

is not a “qualified trust” for purposes of I.R.C. §401(a)(9). Naming the charity as a sole

beneficiary of an account does not create any particular problems with the minimum distribution

rules, because after the required beginning date the participant will be entitled to use the

Minimum Distribution Table to determine distributions during his or her lifetime. The same

treatment would be available after the required beginning date even if the charity and individual

beneficiaries were named beneficiaries of a particular account. However, when beneficiaries

include both individuals and a charity, separate accounts under Treas. Reg. §1.401(a)(9)-8, Q-2,

A-2(a) or separate IRA accounts should be considered, to ensure that following the participant’s

death, the individual beneficiaries will have the right to take distributions over their respective

lifetimes.

It should be noted that during the participant’s lifetime, a distribution directly to the

charity will be treated as a distribution to the participant followed by a contribution to the

charity. Any such distribution is subject to regular income tax and the I.R.C. §72(t) penalty for

premature distribution. Under the Pension Protection Act of 2006, special rules apply to

Qualified Charitable Distributions (“QCDs”) for 2012 and 2013. Under these rules, a taxpayer

may exclude from income QCDs of up to $100,000 per year. There are several requirements for

a QCD:

• The QCD must be made directly from the IRA to the charity (the account holder cannot

receive the funds him or herself).

• The QCD must be made after the date the IRA owner has attained age 70½.

• The IRA may be a regular or Roth IRA but may not be a SEP or Simple.

• The charity must be one described in I.R.C. §408(d)(8)(F) which excludes donor advised

funds and certain supporting organizations under I.R.C. §509(a)(3).

These changes were made by way of amendments to I.R.C. §408(d)(8)(F). Interestingly,

a taxpayer’s QCD will be considered as part of the taxpayer’s RMD for the calendar year.

• With respect to the charitable rollover provisions of §408(d)(8), the following

clarifications are made in the Notice 2007-7:

• The limit is $100,000, regardless of how many IRAs the owner has and regardless of

whether the taxpayer is married filing a joint return. If both a husband and wife each

have IRAs, they each have a $100,000 limit.

Page 48: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 46 -

• The rollover must be directly to a charity described at §170(b)(1)(A) and may not be to a

supporting organization described at §509(a)(3) or a donor advised fund described at

§4966(d)(2).

• Although a direct rollover may not occur from a simple IRA or a SEPP IRA, the Notice

permits the direct rollover from such an arrangement if it is not an "ongoing Simple or

SEPP." An ongoing Simple or SEPP is one for which an employer made a contribution

for the plan year ending with or within the account holder's taxable year in which the

charitable contribution will be made.

• The Notice expands the charitable rollover to an f/b/o IRA. If the beneficiary of the f/b/o

IRA is over 70½ years of age, such beneficiary may complete a charitable rollover.

• The charitable rollover is not subject to withholding and the custodian may rely upon

"reasonable representations" made by the IRA owner.

• The charitable rollover may be made by a check payable from the IRA custodian to the

charitable organization even though the check is delivered by the IRA owner.

• The charitable rollover will not be considered a prohibited transaction under IRC §4975

because, for prohibited transaction purposes, the distribution is treated as having been

received by the account holder. Thus, it appears that a charitable pledge may be satisfied

through the charitable rollover.

• Under the 2010 Tax Relief Act, there is a special rule for QCDs made in January of 2011.

These QCDs may be treated as if made on December 31, 2010 (so as to count towards a

2010 $100,000 limitation) and so as to satisfy the taxpayer’s RMD for 2010.

Charitable Trusts. Charitable trusts are arrangements under which tax-exempt

organizations ("Charities") and individual heirs share the economic benefits of a trust in

successive fashion. A Charitable Remainder Trust ("CRT") is a trust under which the individual

beneficiary or beneficiaries receive payments for some specified time period; and, at the end of

the specified period, the remaining trust principal is distributed to Charities. For example, a CRT

may be designed to provide benefits for a spouse during his or her lifetime; and, upon his or her

death, pass to Charities. There are two types of CRTs:

A charitable remainder annuity trust or "CRAT" is an arrangement in which a fixed dollar

amount is distributed from the trust to the individual beneficiary each year.

A charitable remainder unitrust or "CRUT" is a trust which pays the individual

beneficiary a fixed percentage (at least 5% but no more than 50%) of each year's opening

value of the trust. This type of distribution is a "unitrust distribution". Because CRUTs

tend to be more flexible and provide some inflationary protection to the individual

beneficiaries, they are more common than CRATs.

CRTs must comply with rigorous rules under IRC §664 CRTs, if so qualified, are exempt

from income tax. Thus, IRA distributions to a CRT may be exempt from income tax.

Page 49: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 47 -

However, as will be discussed below, what is known as the unrelated business taxable

income or "UBTI" rules apply to CRTs.

The second type of charitable trust is known as a charitable lead trust or "CLT". Under

this arrangement, the charity is provided with an annuity or unitrust distribution for a

period of time; and, at the end of such period, the balance of the trust is distributed to or

in trust for individual beneficiaries. Unlike CRTs, however, CLTs are not exempt from

income taxes. Thus, a CLT would have to pay income tax on amounts it receives from an

IRA. Because of this, creating a CLT as beneficiary of your IRA will likely not be

advantageous. Therefore, the balance of this discussion will focus on CRTs.

Here is how the RMD rules work with a CRT:

RMDs While Account Holder is Alive. While the account holder is living, RMDs will be

computed under the "Uniform Lifetime" table of the regulations.

The key planning move that would change the RMD calculation would be the conversion

of all or a part of the IRA to a Roth IRA. After 2009, a taxpayer will be able to convert

all or any portion of an IRA to a Roth IRA as there will no longer be a prohibition on

individuals with adjusted gross income of more than $100,000 making such a conversion.

The portion of the IRA converted to a Roth IRA will no longer be subject to RMD rules

while the account holder is living. Moreover, if the spouse is beneficiary of the Roth

IRA, there will be no RMDs during his or her lifetime as well. Any portion of an IRA

which is converted to a Roth would likely be better left to the account holder's spouse and

ultimately to children as opposed to a CRT.

RMDs Following Death. Following the account holder's death, RMDs to the CRT will

be computed as follows: The first RMD will be determined using a divisor equal to the

account holder's life expectancy under Treasury tables based on his/her actual age at

death. For example, if the account holder passed away at age 77, the initial divisor would

be 12.1. Each year thereafter, the divisor would be reduced by 1. This creates a

relatively fast distribution from the IRA to the CRT. If the account holder dies before the

required beginning date, the CRT must take distribution under the five (5) year rule.

However, if the CRT is tax-exempt, the CRT does not pay income tax on these

distributions. Moreover, the CRT may reinvest these proceeds. Earnings on the

reinvestments, likewise, are tax-free to the CRT assuming it is tax-exempt.

Although the CRT itself may be tax-exempt, distributions from the CRT to the individual

beneficiary are not. Instead, distributions to the individual beneficiary are classified as

income to the individual beneficiary according to what is known as the "four-tier

system". Essentially, as amounts are received by the CRT tax-free, the CRT must,

nonetheless, keep a running total of the amount of different types of income it has

received (i.e., ordinary income, capital gain, tax exempt income or principal). Funds

received by a CRT from a decedent's IRA are allocated to the ordinary income running

total.

Page 50: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 48 -

When the individual beneficiary of the CRT receives his or her annual distribution from

the CRT, the taxation of such distribution is determined according to a priority in the

four-tier system. Not surprisingly, until the CRT's ordinary income tier is completely

distributed by way of annual distributions to the individual beneficiary, such distributions

are ordinary income to the individual beneficiary. For example, if an account holder

creates a CRT and designated it as beneficiary of all or part of the IRA and such CRT is

structured so that his or her spouse is the individual beneficiary, (i) distributions from the

IRA to the CRT may be exempt from income tax and (ii) distributions to the spouse from

the CRT will be taxed to his/her as ordinary income.

A CRT in which the spouse is the sole individual beneficiary will qualify for the estate

tax marital deduction and the Charity's interest in the CRT will qualify for the charitable

estate tax deduction. Thus, if the CRT is structured this way, there will be no estate tax

on the CRT. Under the Internal Revenue Code, the foregoing treatment is only permitted

if the spouse is the sole individual beneficiary of the CRT.

As mentioned at the beginning of this discussion, CRTs are subject to the Tax Code's

UBTI rules. Under Prop. Reg. 1.664-1, a CRT with UBTI no longer loses its tax exempt

status, but an excise tax is imposed and is equal to the full amount of the UBTI. This, of

course, would cause a loss of a key benefit of naming a CRT as beneficiary of the IRA.

Although most commentators believe that IRA distributions to a CRT should not be

treated as UBTI, this issue has not been conclusively resolved. In PLR 200230018, the

IRS ruled that a payment from an IRA directly to a charity did not constitute UBTI. If an

account holder were to proceed with a CRT to be beneficiary of all or a portion of an

IRA, it may be wise to get a private letter ruling from the Internal Revenue Service

concerning this key issue.

If a charity is a beneficiary of an IRA or retirement then as long as the charity is a

qualified recipient under I.R.C. §2055, the estate will be entitled to a charitable deduction.

On a couple of occasions, the IRS has allowed the personal representative of an estate to

allocate IRAs in non-pro rata distributions to charitable beneficiaries. In other words, the estate

was designated as beneficiary of the IRA and there were charitable gifts under the decedent’s

Will. The Service permitted allocation of the IRAs to the charitable beneficiaries without

causing income to the estate under IRC §691. LR 20052004, LR 200633009 and 200826028.

• LR 200644020 illustrates the importance of form over substance when it comes to gifts to

charities of an IRA. In this ruling, a revocable living trust was designated beneficiary of

the decedent's IRA. The dispositive provisions of the trust called for a $100,000

distribution "in cash or in kind" to charities. The residue of the trust was to be distributed

to the decedent's children. There was no specific direction that IRA proceeds payable to

the trust be used to satisfy this pecuniary charitable bequest.

The trustee directed the IRA custodian to create f/b/o IRAs for each of the charities to

satisfy the $100,000 charitable bequest.

Here is how the IRS analyzed this situation:

Page 51: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 49 -

• The IRA was IRD under IRC §691 and its allocation to the charities was not

specifically required by the trust, therefore, the allocation to the charities

constitutes a sale, exchange or other disposition under IRC §691(a)(2).

• As a result, the trust has income of $100,000. However, because the trust did not

require that its income be set aside for charitable purposes, no income tax

charitable deduction is available under IRC §642(c)(1).

The foregoing result is premised on the old Kenan v. Comm'r, 25 AFTR 607 (2d Circ.

1940) case. Stated another way, this result is premised on the fact that the charitable

bequest under the trust was pecuniary and not fractional.

One could argue that the IRS reads IRC §691(a)(2) too narrowly and that the trustee's

general power to make distributions in cash, in kind or both would put the charities in a

position of an entity acquiring the IRA pursuant to said entity's right to receive such

amount. This is a dangerous precipice to stand on. There are ways to avoid the results of

this ruling:

• The easiest (and best) way to avoid the result of the ruling is to directly designate

the charity as beneficiary of a fraction of the IRA. If the decedent has a dollar

amount in mind, say $100,000, the safest approach in the IRA beneficiary

designation would be as follows: "That portion of my IRA determined with

reference to a fraction, the numerator of which is $100,000 and the denominator

of which is the date of death value of my IRA". This method will also satisfy the

requirements for separate IRA treatment with regard to the non-charitable portion

of the IRA.

• If the planner wishes to have the IRA payable to a living trust (or estate) and

thereafter divided among charitable and non-charitable beneficiaries, care should

be taken to either set up the charitable bequest as a fractional gift or make it a

pecuniary gift with the direction that it be satisfied first with IRAs. See LR

200608032. Even if the planner takes one of these alternate approaches, running

the IRA through a trust or estate involves additional issues with regard to DNI,

the trust's treatment as a qualified trust and identification of beneficiaries for

RMD purposes.

• If the charity had been a residual beneficiary, then, under IRC §691, there would

be no acceleration when the f/b/o IRA is allocated to it. LR 200652028.

The foregoing discussing concerning charitable gifts applies to any form of pecuniary gift

that might be satisfied with an IRA. However, it is interesting to note that LR 200705032

allowed an IRA to be allocated to a surviving spouse to satisfy a pecuniary marital

bequest and, thereafter, the surviving spouse completed an "indirect rollover."

LR 201013033. In this case, the decedent did not name a beneficiary of the IRA. Under

the custodial account, the decedent’s estate became the beneficiary. The decedent’s

estate was to “pour over” to a living trust. The living trust provided that a charity receive

Page 52: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 50 -

a percentage of the trust. The estate proposed transferring the IRA to the trust followed

by a transfer of the IRA by the trust to the charity in satisfaction of its fractional gift. The

IRS concluded that this transfer did not accelerate or cause taxation of the IRA income to

the trust because the charity was a specific residuary legatee within the meaning of Reg.

1.691(a)-4(b)(2).

In Private Letter Ruling 2002-34-019 (May 13, 2002), the I.R.S. ruled that a non-pro rata

allocation of various IRAs to charities that were residual beneficiaries of an estate did not

accelerate income under I.R.C. §691.

LR 200845029. Under this private letter ruling, a defined benefit plan was payable to an

estate. A charity was a residual beneficiary of the estate. The estate proposed to assign

its right to the defined benefit plan to the charity.

The IRS ruled that under 691(a)(2) an item of IRD may be transferred without

accelerating income tax to the person entitled to such item. The charity’s position as

residual beneficiary entitled it to the item of IRD so that the transfer by the estate did not

accelerate income tax.

(5) Estate Tax Allocation Issue

Let’s assume the decedent had a §401(k) plan account and an IRA. Also assume that

under the decedent’s estate plan, he did the following: (i) by beneficiary designations, left the

retirement plan and IRA (“Retirement Benefits”) to Child A and (ii) by Will and/or other

dispositive documents, all other assets to Child B. Let’s also assume that decedent’s Will either

says nothing about estate tax apportionment or invokes RCW 83.110A. Let’s assume that

Child B is the personal representative of the estate and Child A has no assets other than the

inherited Retirement Benefits.

As an initial matter, there is no federal estate tax apportionment with respect to

Retirement Benefits. In fact, the federal estate tax apportionment applicable to life insurance

proceeds does not apply to annuities.

Under RCW 83.110A.030, the estate taxes attributable to the IRA are apportioned to

Child A. Assuming Child A is a deadbeat, RCW 6.15.020 prevents attachment of the IRA and

IRC §401(a)(13) (and its ERISA counterpart) prevent attachment of the §401(k) plan account.

This means that Child B, as personal representative, would be required to pay the taxes

him or herself as required by RCW 83.110A.080 and, based on this payment, have a right of

reimbursement under RCW 83.110A.090. I suppose this would allow Child B to attach RMDs

and other distributions as taken by Child A.

Let’s assume that, instead of the Retirement Benefits being paid to Child A in our

example, the Retirement Benefits are, instead, payable to a trust of which Child A is the

beneficiary. In this case, RCW 83.110A.030 does require some apportionment to the principal of

the trust. However, the “person” responsible to pay the taxes so apportioned would be the trust

itself and the trustee could assert the protection of ERISA and RCW 6.15.020. In short, I think

the result would be the same.

Page 53: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 51 -

It should be noted that IRC and ERISA protection for the §401(k) plan is subject to a

federal tax levy. Thus, it is possible with the Retirement Benefits that, if the taxes were not paid,

Child B could face transferee liability and a levy could be imposed upon the §401(k) plan

account and the IRA under IRC §6901. I am not sure if this would actually happen as

Washington’s estate tax apportionment provisions seem to require that Child B pay the tax and

seek reimbursement from Child A.

§13.4 GIFT TAX

When completing a beneficiary designation or electing a form of payout on behalf of the

working spouse, the planner must also consider the federal gift tax implications. Prior to the

1986 Act, I.R.C. §2517(a) provided that the exercise or nonexercise by an employee of an

election or option whereby plan benefits would become payable to any beneficiary after the

employee’s death would not be considered a gift. Former I.R.C. §2517(c) provided that a transfer

of retirement benefits to a designated beneficiary would not be treated as a gift of the

nonworking spouse’s community one-half interest by the nonworking spouse. The 1986 Act

repealed I.R.C. §2517. If the nonworking spouse waives, before the death of the participant, any

survivor benefit or right to such survivor benefit under I.R.C. §401(a)(11) or I.R.C. §417, the

waiver is not to be treated as a transfer of property by gift. Under I.R.C. §2523(f)(6), the

acceptance of a qualified joint and survivor annuity form of payment by the nonworking spouse

will be treated as a gift from the working spouse. That gift will qualify for a marital deduction

unless the working spouse elects otherwise.

§13.5 SPOUSAL PROTECTION UNDER ERISA

I.R.C. §§401(a)(11) & 417 and ERISA provide safeguards for the nonworking spouse’s

interest in the working spouse’s qualified retirement plan benefits. Generally, distributions from

a qualified plan that begin during a participant’s life must be in the form of a single life annuity

with respect to a single participant, or a qualified joint and survivor annuity with respect to a

married participant. I.R.C. §401(a)(11)(A)(i). A qualified joint and survivor annuity is an

annuity payable over the joint lives of the working and nonworking spouse with payments to the

nonworking spouse being equal to one-half of those made to the working spouse. I.R.C.

§417(b)(1). For example, if the working spouse’s lifetime payments were $300 per month, the

nonworking spouse’s monthly payments must be $150 after the death of the working spouse.

If a married participant dies before distributions from a retirement plan have begun, the

participant’s spouse is entitled to a preretirement survivor annuity. I.R.C. §401(a)(11)(A)(ii). In

the defined benefit plan context, a preretirement survivor annuity equals what the surviving

spouse’s benefits would have been under the survivor portion of a qualified joint and survivor

annuity. I.R.C. §417(c)(1). Under a defined contribution plan, the surviving spouse is entitled to

an annuity payable over the nonworking spouse’s lifetime from one-half of the deceased

participant’s account balance. I.R.C. §417(c)(1).

Profit sharing plans (i.e., §401(k) plans) receive a limited exemption from the annuity

requirements. This exemption is available only if the plan provides that upon his or her death, the

participant’s benefit is payable in full to the participant’s surviving spouse, and the participant

does not elect payment of benefits in the form of a life annuity. I.R.C. §401(a)(11)(B)(iii). The

Page 54: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 52 -

annuity requirements, however, attach to any profit sharing account that represents benefits

formerly held by a plan that were subject to the annuity requirements. Id. Importantly, the

annuity requirements do not apply to IRAs.

In short, there are valuable federal property rights for the spouse of a participant. In the

case of a typical money purchase pension plan or other plan fully subject to the annuity rules, the

spousal protection applies to any distributions made during the participant’s lifetime and at the

participant’s death. In the case of a plan not subject to the annuity requirements (i.e., a profit

sharing or §401(k) plan), the surviving spouse must be the sole beneficiary of the participant’s

account, unless the spouse consents otherwise. Essentially, under the annuity requirements, the

spouse is given a one-half interest in the plan. Under the profit sharing plan exception, the spouse

has no rights during the participant’s lifetime (other than those provided under community

property laws) but is entitled to be the sole beneficiary at the participant’s death. A plan subject

to the spousal annuity rules may require the participant and spouse to be married one year before

the spousal annuity rules apply to the participant’s account. These rights may only be waived in

accordance with the terms of the applicable plan document.

Of course, the spousal rights of the Retirement Equity Act of 1984 (REA), Pub. L. 98-

397, 98 Stat. 1426 (1984), can create problems in the area of prenuptial agreements. In this

context, the practitioner must differentiate between the divorce and the death setting. In Critchell

v. Critchell, 746 A.2d 282 (D.C. 2000), the court held that a future spouse’s waiver of claims

against a retirement plan benefit may be upheld in a divorce setting but will not be valid at the

participant’s death. See also Hurwitz v. Sher, 982 F.2d 778 (2d Cir. 1992), cert. denied, 508

U.S. 912 (1993); Treas. Reg. §1.401(a)-20, Q-28, A-28. In the case of Ford Motor Co. v. Ross,

129 F. Supp. 1070 (2001), the issue was a prenuptial agreement under which the future spouse

waived all interest in retirement benefits. After marriage, the spouse never signed the proper

consents and waivers required by REA. The participant died and the spouse claimed her ERISA

protected benefits. Citing Boggs v. Boggs, 520 U.S. 833, 117 S. Ct. 1754, 138 L. Ed. 2d 45

(1996), the court held that ERISA preempted the prenuptial agreement. Moreover, the court

rejected an attempt by the decedent’s children to impose a constructive trust on the benefits, as

such a constructive trust would frustrate the ERISA spousal annuity rights. The Fourth Circuit

Court of Appeals confirmed that a prenuptial agreement does not satisfy the requirements of

REA. Hagwood v. Newton, 282 F.3d 285 (2002). In that case, the spouse had executed a

prenuptial agreement but not the required REA waivers. Thus, on the death of the working

spouse, the nonworking spouse was entitled to the benefits purportedly waived by the prenuptial

agreement. Interestingly, the court, in dicta, stated that while the working spouse was still alive,

he possibly could have compelled execution of the REA waivers as required by the prenuptial

agreement. See also Manning v. Hayes, 212 F.3d 866, 870 (5th Cir. 2000), cert. denied, 532

U.S. 941 (2001).

In Hamilton v. Washington State Plumbing & Pipefitting Industry Pension Plan (2006,

CA 9) 2006 WL 44305, the participant divorced his first wife, Linda, in 1996. The dissolution

decree required that the participant name his children as beneficiaries of his pension. After the

divorce, the participant married his second wife, Mary. The participant died in 2002. Under the

terms of the plan, Mary was to receive the entire benefit in the event of death before retirement.

She asserted this right under the terms of the plan. The children asserted that the 1996 marital

dissolution order was a QDRO and that they should receive the benefits. The Ninth Circuit

Page 55: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 53 -

determined that the prior order was a QDRO. However, the Ninth Circuit also found that the plan

spousal rights were based on ERISA §205(a)(2) and superseded the QDRO.

In the context of a prenuptial agreement in Washington state, the practitioner may wish to

consider (i) delineating what benefits will be considered community versus separate,

(ii) including a waiver by the future spouse of the participant’s separate property retirement

benefits in the context of a divorce, and (iii) requiring the future spouse to sign appropriate REA

documents to waive spousal death benefit rights and tying the waivers to some type of economic

sanction. Of course, the participant should be counseled that the provision in the agreement

requiring the future spouse to execute REA waivers may not be enforceable, and perhaps the

penalty for failure to waive the REA rights may likewise be unenforceable.

Private Letter Ruling 2002-15-061 (Jan. 16, 2002) permitted a postnuptial agreement

setting out the division of an IRA in the event of divorce. Importantly, there was no division or

distribution pursuant to the agreement unless and until divorce.

DAVENPORT V. DAVENPORT, 146 F. Supp. 2d 770 (M.D.N.C. 2001). In Davenport,

the participant and his spouse had been married seven years. The participant had

a sizeable account balance under a profit sharing plan. Prior to the participant’s

death, the couple separated and began the dissolution process. During this time,

the participant executed a new will, leaving his entire estate to his four children.

The participant did not change the beneficiary designation on his profit sharing

plan. As noted above, ERISA would have required the spouse to consent to such

a change. The participant committed suicide, the surviving spouse applied to the

plan administrator for benefits, and the plan administrator brought an action in

equity to have the benefits paid to the participant’s estate. The Unites States

District Court held that because the participant’s spouse was the designated

beneficiary and the participant had not named another beneficiary (nor had the

spouse consented to designation of another beneficiary), she was entitled to the

plan benefits.

Owens v. Automotive Machinists Pension Trust 2007 U.S. Dist. LEXIS 7797 (W.D.

Wash. 2007). This is a fascinating case arising in Washington State. Under evolving case law in

Washington State, non-spouse cohabitants can accrue community-like property which can be

divided in divorce and handled at death in the same manner as community property. This case

involved a couple who lived together for over 30 years and had two children together. The court

found that the pension was "community-like property" and issued a qualified domestic relations

order or "QDRO" requiring payment of a portion of the pension to the other cohabitant. The

trustees of the plan refused to recognize the Order on the basis that the couple were never legally

married and that to be a QDRO, the Order must relate to child support, alimony or marital

property rights. Also, the trustees objected on the basis that the alternate payee was not a spouse,

former spouse or child of the participant. The court held that the community-like property was a

"marital property right" under ERISA and could, therefore, be subject to a QDRO.

A 2007 Court of Appeals case dealt with a spousal waiver to a retirement plan account

contained in a prenuptial agreement. In this case, the account holder spouse committed suicide

after marriage, but before he had completed a beneficiary designation and obtained his new

Page 56: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 54 -

wife's waiver of ERISA's spousal protection. The prenuptial agreement clearly provided that the

wife had waived any rights under the plan. Both the United States District Court and Court of

Appeals found that (i) the waiver contained in the prenuptial agreement was not worth the paper

it was written on as it did not satisfy ERISA's spousal consent requirements (most notably that

the consent be obtained after marriage in the form provided by the plan) and (ii) the wife was not

in breach of the agreement as she had not been asked to sign a waiver and consent while the

husband was living. Greenbaum Dahl & McDonald PLLC v. Sandler, 2007 U.S. App. LEXIS

28823 (6th

Cir. 2007). There have been several cases in which a spouse who ends up as

beneficiary contrary to a previous prenuptial or separation agreement may in fact face a breach

of contract claim under state law. E.g., Alcorn v. Appleton, 2009 W.L. 2997730 (N.D. GA

2009); Robins v. Geisel, (D.N.J. 2009).

Carmona v. Carmona, (September 17, 2008 U.S.C.A. 9). This is a fascinating case.

Mr. Carmona retired and commenced taking a joint and survivor annuity from a pension

plan. The annuity provided for a payment of a certain amount to Mr. Carmona during his

lifetime with payments to continue to his then wife (“wife one”) following

Mr. Carmona’s death.

Mr. Carmona and wife one divorced. The divorce decree awarded Mr. Carmona his

entire interest in the defined benefit plan.

Mr. Carmona later remarried (“wife two”). When he attempted to convince the pension

plan administrator to change the survivor beneficiary to wife two, the plan administrator

refused.

The United States Court of Appeals held that wife one will continue as the survivor

beneficiary of the pension plan payment. The Court reasoned that she never waived her

right to survivorship benefits at the time payment began. The state divorce court’s later

order is therefore preempted by ERISA.

The Ninth Circuit Court of Appeals recently ruled that the spousal protection of ERISA

does not transfer from a §401(k) plan to an IRA. In this case, the decedent took distribution of a

§401(k) plan and rolled it into an IRA. The decedent designated his four adult children as the

IRA’s beneficiaries. Following the decedent’s death, the surviving spouse asserted that ERISA’s

protections should apply to the IRA because it emanated from a §401(k) plan. The lower court

granted summary judgment in favor of the decedent’s children and this was upheld by the Court

of Appeals. This decision is correct because ERISA does not provide the surviving spouse death

benefit protection until the death of the spouse. At that time, the plan in question must be an

ERISA plan for the protection to apply. Charles Schwab & Co. v. Chandler, 105 AFTR 2d,

2010-690.

§13.6 COMMUNITY PROPERTY

Retirement plan benefits are generally considered to accrue from day to day and year to

year until they finally ripen into vested and matured interests. In community property states the

benefits that accrue during marriage are community property. The courts treat such benefits as if

the benefits had been purchased by the employee out of earnings. Thus, such property is owned

Page 57: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 55 -

in separate and community proportions according to the character of the hypothetical earnings

used to make the “payments.” Harry M. Cross, The Community Property Law in Washington

(rev. 1985), 61 WASH. L. REV. 13, 29 (1986 )

Although IRAs may be classified as community property for state law purposes, I.R.C.

§408(g) requires that the income tax rules governing IRA distributions be applied without regard

to community property law. This requirement can create traps for the unwary. In Bunney v.

Commissioner, 114 T.C. No. 17 (2000), the husband, in the process of a divorce, had a portion of

his IRA distributed to the wife. The I.R.S. asserted that the sole means to divide an IRA in a

divorce is through I.R.C. §408(d), which requires a direct transfer from one spouse’s IRA to the

divorcing spouse’s IRA. Moreover, the I.R.S. asserted that because the husband was the account

holder, the husband was liable for income tax and a 10 percent penalty under I.R.C. §72 relative

to the IRA distribution to his ex-wife. The husband argued that the wife should be considered the

distributee for income tax purposes because she was receiving her community property interest

in the IRA. The Tax Court agreed with the I.R.S. and taxed the husband.

In Morris v. Commissioner, 83 T.C.M. (CCH) 1104 (2002), the Tax Court again ignored

community property laws by refusing to allow the I.R.S. to proceed against the non-account-

holder spouse with an income tax deficiency resulting from the account holder spouse’s

withdrawals from a community property IRA.

Tax-qualified retirement plan benefits may be awarded to a former spouse or children

pursuant to a qualified domestic relations order under I.R.C. §414(p). I.R.C. §402 specifically

provides that the income tax associated with a distribution to the ex-spouse under such an order

is allocated to the ex-spouse. What catches practitioners by surprise, however, is that

distributions pursuant to a qualified domestic relations order to anyone other than the ex-spouse

(i.e., children of the couple or death beneficiary of the ex-spouse) are fully taxable to the

participant.

As discussed below, the community property interest of the decedent nonworking spouse

in a tax-qualified retirement plan essentially disappears in the event that the nonworking spouse

predeceases the working spouse.

There have been other clashes between ERISA and state laws. The Washington Supreme

Court held that a statute revoking beneficiary designations upon divorce (RCW 11.07.010)

would apply to a §401(k) plan beneficiary designation. In re Estate of Egelhoff, 139 Wn.2d 557

(1998). However, the United States Supreme Court reversed this decision, stating that the

Washington statute is preempted by ERISA in the case of a §401(k) plan. Egelhoff v. Egelhoff,

532 U.S. 141, 121 S. Ct. 1322, 149 L. Ed. 2d 264 (2001). The United States Supreme Court

reversal calls into question another Washington case. In In re Estate of Gardner, 103 Wn. App.

557, 13 P.3d 655 (2000), the court reviewed a divorce decree under which the spouses divided

their property and waived all claims against each other. The husband died before changing the

beneficiary designation on his TIAA-CREF plan. To complicate matters, the husband had

remarried prior to his death. The plan administrator took the position that the second spouse was

entitled to her 50 percent interest under ERISA and the remaining 50 percent should pass to the

first spouse as per the beneficiary designation. The Washington Court of Appeals, citing Egelhoff

and RCW 11.07.010(2)(a), held that divorce revoked the beneficiary designation and held that

Page 58: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 56 -

the second spouse was to receive all of the benefits (50 percent under ERISA and 50 percent in

recognition of her community property).

The Texas Supreme Court has also not agreed with the Egelhoff result. In Keen v.

Weaver, 121 S.W.3d 721 (Tex.), cert. denied, 488 U.S. 1006 (2003), the plan participant and

wife were divorced, but the participant died without changing the beneficiary designation for

plan benefits, leaving his former wife as the primary beneficiary and his mother as the contingent

beneficiary. Texas had a "redesignation" statute similar to that at issue in the Egelhoff decision.

The Texas Supreme Court stated that although ERISA preempts the Texas redesignation statute,

federal common law principles would recognize the former spouse's voluntary and knowing

waiver of the plan's benefits. Not surprisingly, this was a five/four decision with the dissenters

believing that the former spouse should receive the benefits.

In yet another case indicating a strong trend in favor of ERISA preemption, the Fifth

Circuit Court of Appeals stated that in a simultaneous death setting, payment of benefits is

governed by ERISA, the plain meaning of the plan language, and beneficiary designation.

Tucker v. Shreveport Transit Mgmt, Inc., 226 F.3d 394 (5th Cir. 2000). In this case, the court

refused to take into consideration a “simultaneous death” provision in the decedent’s will as well

as Louisiana’s statute concerning presumed survivorship.

In a postnuptial agreement, husband and wife agreed to disposition of husband’s IRA in

the event of a divorce. The IRA was not currently segregated or divided in any way. The I.R.S.

concluded that this arrangement did not cause any form of deemed distribution or a prohibited

transaction within the meaning of I.R.C. §4975(c). Priv. Ltr. Rul. 2002-15-061 (Jan. 16, 2002).

If the nonworking spouse has a community property interest in the working spouse’s

accounts, consideration must be given to planning for the disposition of his or her interest.

Unfortunately, the extent to which the nonworking spouse may control the disposition of the

interest is unclear. Most community property states regard the nonworking spouse as having a

community property interest in the working spouse’s retirement plans to the extent the benefits

accrued during marriage. The same is true of IRAs. The community property states that have

addressed the issue allow the nonworking spouse to dispose of that interest by will if he or she

predeceases the working spouse. In re Estate of Mundell, 124 Idaho 152, 857 P.2d 631 (1993);

In re Estate of MacDonald, 51 Cal. 3d 262, 794 P.2d 911 (1990); Allard v. Frech, 754 S.W.2d

111 (Tex. 1988), cert. denied, 488 U.S. 1006 (1989); Farver v. Dep’t of Retirement Sys., 97

Wn.2d 344, 644 P.2d 1149 (1982).

Although the state courts have generally recognized that the nonworking spouse has a

community property interest in the portion of a qualified plan that accrues during marriage, the

United States Supreme Court has held that the anti-alienation provisions of ERISA prevent the

nonworking spouse from disposing of his or her interest with respect to qualified plans. In Boggs

v. Boggs, 520 U.S. 833, 117 S. Ct. 1754, 138 L. Ed. 2d 45 (1996), the Supreme Court essentially

followed the logic of and came to the same conclusion as the Ninth Circuit Court of Appeals in

Ablamis v. Roper, 937 F.2d 1450 (9th Cir. 1991). Thus, although the nonworking spouse may

have a community property interest in a retirement plan during his or her nonworking spouse’s

lifetime, that interest is inaccessible following his or her death. Like the Ablamis decision, the

Boggs decision significantly impacts planning in a community property jurisdiction. For

Page 59: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 57 -

example, if the couple wishes to have the entire community property of the first spouse to die

pass into trusts for the benefit of the surviving spouse, that wish could be carried out relative to

the retirement plan if the working spouse dies first. However, if the nonworking spouse dies first,

the working spouse could assert the Boggs decision to prevent the deceased nonworking spouse’s

interest from being awarded to a trust under the deceased nonworking spouse’s will. In such a

case, could the estate of the nonworking spouse obtain some sort of “charging order” against the

surviving working spouse’s interest in the couple’s community property? Or, would such a

charging order likewise be preempted by ERISA and the Boggs decision?

A charging order would likely be unobtainable. The Boggs decision denied both access to

the retirement plan benefits and an “accounting” from other assets. Moreover, the United States

Supreme Court, in Yiatchos v. Yiatchos, 376 U.S. 306, 84 S. Ct. 742, 11 L. Ed. 2d 724 (1964),

held that relative to United States Savings Bonds, federal law prevails over inconsistent state

law. In Yiatchos, the heirs attempted to preclude a surviving joint tenant from taking United

States Savings Bonds and, in the alternative, argued for a charging order against other assets. The

Supreme Court made quick work of both arguments and stated that awarding the joint tenancy

assets to the co-owner but requiring the co-owner to account for one-half of the value of those

assets would render the federal law and award of title meaningless.

The Boggs decision could prevent the nonworking spouse from making full use of his or

her unified credit. In particular, the rule may prevent a nonworking spouse who owns few assets

(other than a retirement plan account) from sheltering enough other assets from inclusion in the

estate of the working spouse. As a result, the estate of the surviving spouse may be required to

pay a larger estate tax than otherwise. A planning approach might be an agreement prior to death

for a division of the former community property on an “aggregate” approach. The same result

could be obtained after death in states permitting non-pro rata divisions of the former community

property. Query: Would the I.R.S. use the Boggs rule to assert that such a division results in a

gift by the surviving working spouse?

Existing law appears to recognize that the nonworking spouse has much more control

over the disposition of his or her community property interest in an IRA. See RCW 6.15.020.

This statute states that the nonworking spouse's community property interest in the working

spouse's IRA may pass under the nonworking spouse's will. How the interest would actually be

disposed of to someone other than the working spouse is a difficult question.

In Private Letter Ruling 94-39-020 (July 7, 1994), the I.R.S. held that an IRA can be

partitioned (within one IRA account) into equally owned units without adverse tax effects. It

held that the partition of a community property IRA into separate equal shares owned and subject

to disposition by each spouse (but held within the working spouse’s IRA) was not a taxable event

and did not constitute a transfer or distribution for purposes of I.R.C. §408(d)(1). In such a case

the nonworking spouse could dispose of his or her interest in the IRA in a way that shelters it

from inclusion in the working spouse’s estate. This possibility should be explored in connection

with planning for large estates. The Service also held that such a partition did not involve any

gift by either spouse. It should be noted that an actual transfer of one spouse’s IRA into an IRA

in the name of the other spouse is, absent a divorce, a taxable distribution to the account holder

spouse. See Rodoni v. Commissioner, 105 T.C. 29 (1995).

Page 60: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 58 -

In an earlier Private Letter Ruling, the I.R.S. held that a predeceasing spouse may dispose

of his or her community property interest in an IRA. Priv. Ltr. Rul. 80-40-101 (July 15, 1980). In

this ruling the I.R.S. allowed the nonworking spouse’s community property interest in the

working spouse’s rollover IRA to be distributed pursuant to the will of the nonworking spouse. It

further determined that the distribution would not be taxed to the surviving working spouse.

Rather, the benefits were taxable to the individuals who received them. The I.R.S. also

concluded that the custodian of the IRA could recognize the probate court’s order to distribute to

the beneficiaries of the nonworking spouse’s will. The above result may no longer be valid after

the Tax Court’s decisions in Bunney and Morris.

In light of Private Letter Rulings 1999 -25-033 (June 25, 1999) and 1999-12-040 (Dec.

29, 1998), the disclaimer approach may be the best option for “funding” the credit shelter trust

upon the death of the nonworking spouse. Preparation for such funding would be as follows: (1)

the surviving spouse should be named as sole personal representative of the will and given broad

non-pro rata division and distribution powers, (2) the will should specifically provide that the

deceased spouse’s interest in the surviving spouse’s IRA will pass to the surviving spouse, but if

the surviving spouse disclaims, the disclaimed interest will pass to the estate, and (3) the will

should provide that, to the extent possible, the decedent’s interest in the surviving spouse’s IRA

will be allocated to the surviving spouse in any non-pro rata distribution. After death, the amount

necessary to fully fund the credit shelter trust could be disclaimed and then allocated back to the

surviving spouse in a non-pro rata distribution in exchange for the surviving spouse’s community

interest in non-IRA assets. If the I.R.S. does not change the approach it took under the above

Private Letter Rulings, it is likely that the non-pro rata distribution will not accelerate income.

Moreover, it appears that the I.R.S. does not take issue with the non-pro rata distribution by the

surviving spouse in his or her capacity as personal representative following a disclaimer by the

surviving spouse in his or her capacity as an heir of the estate. See Priv. Ltr. Rul. 97-07-008

(Nov. 12, 1996).

§13.7 CREDITORS’ CLAIMS

ERISA protects retirement plan accounts from creditors even if bankruptcy is not filed.

Patterson v. Schumate, 504 U.S. 753, 112 S. Ct. 932, 117 L. Ed. 2d 104 (1992); Barkley v.

Conner (In re Conner), 73 F.3d 258 (9th Cir.), cert. denied, 519 U.S. 817 (1996). IRAs enjoy

creditor protection outside bankruptcy only as provided by state law. See RCW 6.15.020.

It should be noted that ERISA protection does not apply if the retirement plan is

sponsored by an employer and the only participants in the plan are the husband and wife who

own the employer. Gill v. Stern (In re Stern), 345 F.3d 1036 (9th Cir. 2003), cert. denied, 541

U.S. 936 (2004). In other words, the plan must have a participant other than the husband and

wife who own the business. The time of this participation is measured at the time the creditor

asserts the claim. Id. Interestingly, it appears that a debtor could transfer from a nonexempt

retirement plan to a fully exempt retirement plan without the transaction being considered a

fraudulent conveyance under the bankruptcy rules. Id. Thus, for example, an owner of a

business who is facing severe creditor trouble could either (i) hire an employee who immediately

participates in the plan or (ii) the owner himself could take a job with another employer that has

participant employees and transfer his benefits to that employer’s plan.

Page 61: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 59 -

Both IRAs and retirement plans are protected in bankruptcy. The BANKRUPTCY ABUSE

PREVENTION AND CONSUMER PROTECTION ACT OF 2005, Pub. L. 109-8, 119 Stat. 23 (2005),

made key changes made to a debtor’s ability to exempt IRAs and certain tax-qualified retirement

plans in bankruptcy.

To understand the changes, it is helpful to review the prior bankruptcy scheme. The

ability of a debtor to exempt assets from creditors’ claims in a bankruptcy proceeding is

governed by 11 U.S.C. §522. For ease of reference, we will refer to this statute in its pre-

amendment form as the “prior law”. Under the prior law, the debtor was permitted to elect either

a list of federal exemptions or the exemptions provided by applicable state law. The debtor

could not pick and choose from the two groups of exemptions. Of course, either way, qualified

retirement plans governed by ERISA were exempt by virtue of ERISA. Patterson v. Schumate,

504 U.S. 753. However, as discussed above, it is possible for a qualified retirement plan to lack

ERISA protection. With respect to a debtor’s IRA (and a qualified plan not covered by ERISA),

the decision to elect federal or state exemptions was critical. A debtor who elected the

Washington state exemptions would rely on RCW 6.15.020, which exempts IRAs and many non-

ERISA plans from creditors’ claims. RCW 6.15.020. This exemption is unlimited. If federal

exemptions were elected, the prior law stated as follows:

A payment under a stock bonus, pension, profit sharing, annuity or similar plan or

contract on account of illness, disability, death, age, or length of service, to the

extent reasonably necessary for the support of the debtor and any dependent of

the debtor . . . (Emphasis added.)

Former 11 U.S.C. §522(d).

Under the prior law, there was a question as to whether the federal exemption applied to

IRAs at all. This issue was settled by the Supreme Court in Rousey v. Jacoway, ___ U.S. ___,

125 S. Ct. 1561, 161 L. Ed. 2d 563, 73 U.S.L.W. 4277 (2005) In the Rousey case, the debtor

elected the federal exemptions. The Court held that the above quoted section of the prior law

applies to IRAs, but only permitted the debtors to exempt that which was reasonably necessary

for their support. Had the Rousey bankruptcy occurred in the state of Washington and the state

exemptions been elected, the debtor’s entire IRA would have been exempt.

Section 224 of Pub. L. 109-8 substantially changes 11 U.S.C. §522 with respect to its

treatment of IRAs and qualified plans not covered by ERISA. This “new law” includes the

following provisions:

• If the debtor elects state exemptions, IRAs and qualified plans not covered by

ERISA have exempt status unless applicable state law specifically states

otherwise. Therefore, for a Washington resident electing the state exemptions,

RCW 6.15.020 along with the new law will exempt the IRA subject only to a

dollar limit that has a very narrow application, discussed below.

• If the debtor elects the federal list of exemptions under the new law, there is now

a specific exemption for IRA and tax-qualified non-ERISA plans. This

exemption is not subject to the “reasonably necessary for support” test of the prior

Page 62: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 60 -

law. 11 U.S.C.A. 522(d)(12). This exemption is also subject to a very narrowly

worded limit, described below.

• The new law includes a limit for the dollar amount of an IRA that may be exempt.

11 U.S.C.A. 522(n). This dollar limit applies whether the debtor elects state or

federal exemptions. Thus, this dollar limit theoretically could limit application of

RCW 6.15.020 when a Washington resident has elected state exemptions. The

limit is $1 million; however,

1) Amounts in an IRA attributable to a rollover from a qualified plan

are not taken into account in the $1 million limit. This means that the $1 million

limit really only applies to traditional annual IRA contributions and earnings

thereon.

2) The $1 million exemption limit does not apply to a SEP (simplified

employee pension) account or a SIMPLE retirement account. This makes sense

as these are employer-sponsored IRAs similar to 401(k) plans.

Comment: The law is good news for debtors. It is now clear that IRAs may be protected

under both the federal and applicable state exemptions. Because the $1 million

limit does not apply to rollover contributions, it is advisable to keep rollover IRAs

separate from an IRA funded by annual contributions. The new law really does

not affect the treatment of accounts in a tax-qualified retirement plan that is fully

covered by ERISA. As mentioned above, ERISA provides the exemption for

these accounts. However, the new law improves the protection for an account in

a tax-qualified plan that is not covered by ERISA, such as the §401(k) plan in the

In Re Stern case described above. Under the prior law, such an account was only

protected if the debtor elected state exemptions and the state exemptions provided

protection for such an account. Under the new law, as long as the arrangement is

tax-qualified, the federal exemptions provide protection.

In the context of a bankrupt individual with an interest in a qualified retirement plan, the

creditors may have the incentive to look for problems with plan language or administration

leading to plan disqualification. The IRS has a program to retroactively correct qualification

defects as “EPCRS” under Rev. Proc. 2008-50. A bankruptcy court should honor such a

retroactive correction.

Another area of concern involves IRAs. Under IRC §408(e)(2), an IRA will lose its tax

qualified status in the year a prohibited transaction under IRC §4975 occurs with respect to the

IRA. In In Re Ernst W. Willis, 104 AFTR. 2d 2009-5195, the creditors asserted the existence of

prohibited transactions with regard to the debtor’s IRA in order to defeat creditor protection and

obtain access to the IRA. There is no IRS correction program for IRA prohibited transactions.

See the discussion below concerning inherited IRAs and creditor protection.

See the discussion under “Inherited IRAs” below concerning creditor protection for

Inherited IRAs.

Page 63: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 61 -

§13.8 INHERITED IRA

• What is an inherited IRA?

An inherited IRA is an IRA received by a beneficiary of a deceased account holder. As

discussed below, the decedent may have left an IRA to said beneficiary or a retirement plan

account to said beneficiary which retirement plan account is transferred to the inherited IRA by

way of a "non-spouse rollover" under IRC §402(c)(11).

If the decedent's surviving spouse is the beneficiary of the decedent's IRA; then, until the

surviving spouse completes a spousal rollover into an IRA in the name of the surviving spouse,

the decedent's IRA is technically an inherited IRA with regard to the surviving spouse.

However, once the surviving spouse rolls the decedent's IRA into an IRA in the surviving

spouse's name, the surviving spouse becomes the account holder with respect to said IRA and

said rollover IRA is not an inherited IRA.

• How are inherited IRAs created?

An inherited IRA may emanate from a decedent's IRA as follows: The account holder of

an IRA dies designating a beneficiary of his or her IRA. Assuming the beneficiary is not the

surviving spouse (so that there will be no spousal rollover), the IRA will now be registered in the

decedent's name for the benefit of ("f/b/o") the non-spouse beneficiary. If the deceased account

holder named several beneficiaries, the IRA may be divided in compliance with required

minimum distribution ("RMD") rules into separate f/b/o accounts; each in the name of the

decedent f/b/o a specified beneficiary.

Example:

Sally Smith dies in 2007 at age 72 with her three children designated as beneficiaries of

her IRA. Sally's three children make sure that her 2007 RMD is taken before December 31,

2007. Sally's children thereafter direct the custodian of the IRA to divide Sally's IRA by way of

direct IRA-to-IRA transfers into three new IRAs; each in the name of Sally, deceased f/b/o a

specific child. Each of these three IRAs are inherited IRAs which will be treated as separate

IRAs for RMD purposes under Reg. 1.401(a)(9)-8, QA2.

Example:

Fred dies designating his wife, Sue, as beneficiary of his IRA. Sue is only 55 years of

age and fears she may need distributions from Fred's IRA to live on. Sue is advised that

distributions taken from an inherited IRA are exempt from the 10% penalty of Section 72(t) so

she leaves the IRA registered in Fred's name f/b/o Sue. While the IRA is so registered, it is an

inherited IRA with regard to Sue. After attaining age 59½ (when Sue would no longer be subject

to the premature distribution penalty of IRC §72(t)), Sue rolls Fred's IRA into an IRA in Sue's

name. Sue's rollover IRA is not an inherited IRA. It is a rollover IRA of which Sue is the

account holder having all rights of an account holder (e.g., Sue can delay commencing RMDs

until April 1 of the calendar year following the calendar year Sue attains age 70½, Sue may

convert the IRA to a Roth IRA, Sue may designate beneficiaries whose life expectancies will be

utilized for a stretch out distribution following Sue's death under the RMD rules).

Page 64: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 62 -

The second way that an inherited IRA may be created is by way of a "non-spouse

rollover" under IRC §402(c)(11). Under this new Code section, if the retirement plan so allows,

a non-spouse beneficiary may direct the administrator of the decedent's retirement plan to

transfer the decedent's account to an inherited IRA. This is different than the spousal rollover

option. If an account holder in a retirement plan dies designating the spouse as beneficiary, the

spouse has the right to take distribution of the decedent's account and roll it into an IRA in the

spouse's name. Again, the spousal rollover IRA is not an inherited IRA. Rather, the spouse will

be the account holder with respect to the IRA. Section 402(c)(11) allows a non-spouse

beneficiary to have the decedent's account in a retirement plan transferred to an inherited IRA.

Example:

Bill dies in 2007 designating his daughter, Kate, as beneficiary of a §401(k) plan account.

The plan in question permits a non-spouse rollover. Kate may direct the plan to make a direct

plan-to-IRA transfer of Bill's account to an IRA in Bill's name, deceased f/b/o Kate (an inherited

IRA). This direct transfer may occur in one of two ways. The funds could be directly

transferred from the §401(k) plan account to the inherited IRA account. Or, a check in the name

of the IRA custodian may be issued to Kate which Kate takes to the IRA custodian. However,

the §401(k) plan may not issue the check in Kate's name. Section 402(c)(11)(A).

• How are RMDs calculated from an inherited IRA?

A discussion of the RMD rules can be found at Section 1.2(1), above. However, for

purposes of this section, let's assume that there is one individual beneficiary or that the separate

account rules of Reg. 1.401(a)(9)-8 have been complied with so that, for RMD purposes, each

beneficiary would be treated separately. Finally, because special rules apply to a surviving

spouse (a spousal rollover opportunity and the ability to delay RMDs) the following assume an

individual non-spouse beneficiary. Initially, if the decedent was already beyond his or her

required beginning date, the beneficiaries must make certain that the decedent's RMD for the

year of death is made. Reg. 1.401(a)(9)-5, QA4. Unless the "five-year rule" (described below)

applies, a non-spouse recipient of an inherited IRA must begin RMDs no later than the end of the

calendar year following the account holder's death.

Example:

Betty dies in 2007 at age 75 after taking her 2007 RMD naming her daughter, Shirley, as

beneficiary. Shirley's first RMD is due December 31, 2008 and will be computed with reference

to the December 31, 2007 IRA account balance. For her 2008 RMD, Shirley will divide said

account balance by her life expectancy under the single life table ("SLT") of Reg. 1.401(a)(9)-9,

QA1 based on Shirley's attained age in 2008. This process repeats each calendar year by

reducing Shirley's initial divisor by one. In short, the table is only consulted in the first year

(2008) as the divisor, once established in 2008, reduces by one for each year thereafter. This

method is known as a "stretch out".

If the account holder dies before his or her required beginning date, there is the

possibility that the five-year rule may apply. This rule requires that the account be completely

distributed by the end of the calendar year containing the fifth anniversary of the participant's

Page 65: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 63 -

death. Reg. 1.401(a)(9)-3A(b), QA2. Generally speaking, the five-year rule is not a concern

where the decedent's account was in an IRA. However, it is not uncommon for retirement plans

to employ the five-year rule. For example, a §401(k) plan might require that a non-spouse

beneficiary receive complete distribution within five years of the decedent's death. The

beneficiary may nonetheless escape the five-year rule, if (i) the plan permits a non-spouse

rollover and (ii) the beneficiary completes the non-spouse rollover before the end of the calendar

year following the calendar year of the participant's death. Notice 2007-7, QA17(c)(2) and IRS

clarification by newsletter dated February 13, 2007.

Example:

Fred dies at age 60 leaving his §401(k) plan account to his daughter, Pebbles. The

§401(k) plan permits non-spouse rollovers but also states that non-spouse beneficiaries must

complete distribution within five years of death. If Pebbles completes a non-spouse rollover

before the end of the year following Fred's death, the five-year rule will not apply to her inherited

IRA. Instead, Pebbles will obtain the "stretch out" described above. Note, if Pebbles completes

the non-spouse rollover in the year after Fred's death, her RMD for such year may not be

transferred to the inherited IRA.

• What about trusts as beneficiaries?

If a decedent dies naming a trust as beneficiary of an IRA, complicated rules apply in

determining RMDs applicable to the trust (see §13.2(1)(i), above. Said IRA will be an inherited

IRA in the name of the decedent f/b/o the trust. Moreover, if the decedent of a retirement plan

account dies naming a trust as beneficiary, the trustee could direct the retirement plan to transfer

the account directly to an inherited IRA if (i) the plan so allows and (ii) the trust is a qualified

trust under the RMD rules. Notice 2007-7.

• What key rights does a beneficiary of an inherited IRA have?

• The beneficiary may take as little as the required RMD each year or additional

amounts as permitted by the applicable IRA custodial account agreement.

• If the beneficiary wishes to move the IRA from one custodian to another, he or

she may do so by way of a direct IRA-to-IRA transfer. Section 402(c)(11).

• As part of his or her estate plan, the beneficiary may designate who will receive

the balance of the inherited IRA upon the beneficiary's death. This beneficiary

designation does not affect the calculation of RMDs following the beneficiary's

death. Thus, for example, if the beneficiary of an inherited IRA dies naming a

trust as his or her successor, the trustee will be required to continue the RMD

calculation as was formerly utilized by the beneficiary.

• The beneficiary of an inherited IRA may take distributions before he or she

attains age 59½ free of the 10% penalty of IRC §72(t).

Page 66: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 64 -

• The beneficiary of an inherited IRA may deduct from his or her income tax

liability associated with IRA withdrawals the estate tax attributable to such IRA

under IRC §691(c).

• In the process of a non-spouse rollover from a qualified plan, the beneficiary can

convert the account to a Roth under the rules described at Section 1.2(4), above.

• What rights does a beneficiary of an inherited IRA not have?

• The beneficiary of an inherited IRA may not consolidate said IRA with an IRA of

which the beneficiary is an account holder.

• The beneficiary of an inherited IRA may not make pre-tax or after tax

contributions to the inherited IRA.

• A non-spouse beneficiary may not receive a distribution in the beneficiary's name

and then roll the distribution to another IRA. This could be accomplished,

however, by way of an IRA-to-IRA direct transfer.

• The beneficiary may not roll an inherited IRA into a retirement plan account in

the beneficiary's name.

• Under current law, an inherited IRA cannot be converted to a Roth IRA.

As mentioned above, if a surviving spouse is the beneficiary of an IRA, until such IRA is

rolled over into an IRA in the spouse's name, the IRA is an inherited IRA in the hands of the

surviving spouse. Under IRC §408 and §402, a surviving spouse may take a distribution of the

IRA and roll it into an IRA in his or her name. Thereafter, the rollover IRA is no longer an

inherited IRA but an IRA of which the spouse is the account holder for all purposes.

• Creditor protection of an inherited IRA.

Whether an inherited IRA is entitled to creditor protection is an issue “in process”. For

debtors asserting the federal bankruptcy exemptions, there are two conflicting rulings. In the

case of In re Chilton, (Bankr. Ct, TX 35 2010), the Bankruptcy Court found that inherited IRAs

are not entitled to federal bankruptcy protection. This decision was reversed (thankfully) by the

Fifth Circuit. In re Chilton (5th

Cir. 2012). A United States Bankruptcy Court in the District of

Minnesota agreed that Inherited IRAs are protected. In re Nessa, (Bankr. Ct. Minn. 2010).

As to the application of state protective statutes (where the state exemptions are elected in

the bankruptcy), there have been several cases (Alabama, California, Illinois, Oklahoma, Texas

and Wisconsin) where protection has been denied. For a discussion of these cases, see “Are

Inherited IRAs Protected Under a State Exemption Statute?” Steve Leimberg’s Employee

Benefits and Retirement Planning Email Newsletter – Archive Message No. 427.

In In re McClelland, 2008 W.L. 89901 (Bankr. D. Idaho), the court allowed protection

for an inherited IRA under Idaho’s statute. Here in Washington state, RCW 6.15.020 is very

Page 67: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 65 -

broadly written (and very similar to the Idaho statute) so that absent a “result oriented decision”

the correct answer should favor exemption of an inherited IRA under said statute.

As a result of all of this, if the account holder is very worried about creditor protection for

his beneficiaries, a trust as beneficiary (as opposed to the beneficiaries outright) should be

considered.

Page 68: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 66 -

Appendices

§13.22. Appendix A Beneficiary Designation Agreement - Surviving Spouse Naming

Multiple Children

§13.23. Appendix A-1 Primary Beneficiary: Surviving Spouse – Secondary Beneficiary:

Children

§13.24. Appendix B Revocable Living Trust Provisions (Non-Pro Rata Powers)

§13.25. Appendix C Beneficiary Designation

§13.26. Appendix D Will Provisions (Non-Pro Rata Powers)

§13.27. Appendix E Sample QTIP Beneficiary Designation Agreement

§13.28. Appendix F Sample IRA QTIP Trust Provisions (Non “Safe Harbor”)

§13.29. Appendix G Specific Bequest of Non-Working Spouse’s Community Interest

§13.30. Appendix H Will Provisions – Miscellaneous Retirement Plan IRA Matters

§13.31. Appendix I Life Expectancy and Distribution Period Tables

The author expresses no legal, tax, or other opinions herein or with regard to the forms

appearing as appendices (or any other forms attached to this Article). Also, the author takes

no responsibility for misstatements or errors that may appear herein as these materials cannot

be relied upon as research materials. The following should only be used upon a thorough

review of the client’s facts and applicable law. Moreover, the reproduction of

Reg. 1.401(a)(9)-9 appearing at Appendix I is for illustrative purposes only and, due to

possible updates and computer glitches, only the actual regulation from a service publishing

the same should be used to make a calculation

Page 69: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 67 -

§13.22. Appendix A—Beneficiary Designation Agreement – Surviving Spouse Naming

Multiple Children

IRA BENEFICIARY DESIGNATION AGREEMENT

The undersigned "IRA Custodian" (_____________________) and the undersigned

"Participant" (___________________________) do hereby agree as follows with respect to the

IRA Custodial ("Account") maintained by the IRA Custodian on behalf of the Participant:

1. Primary Beneficiaries. The Primary Beneficiaries of the Participant’s Account and

their respective shares for purposes of Section 2 herein, shall be as follows:

Beneficiary Social Security Number Percentage

%

%

%

%

2. Separate IRAs. The Participant’s Account shall be divided into separate IRAs for

the Primary Beneficiaries with each said Primary Beneficiary’s IRA to have allocated to it the

percentage of the Participant’s Account designated above. If a Primary Beneficiary fails to

survive the Participant but leaves at least one lineal descendant who survives the Participant, said

Primary Beneficiary’s IRA shall be further divided, per stirpes, into separate IRAs for said

deceased Primary Beneficiary’s lineal descendants who survive the Participant (who shall be

considered Primary Beneficiaries hereunder); or, if the deceased Primary Beneficiary leaves no

lineal descendant surviving the Participant, the percentage of the Participant’s Account as

designated under Section 1 for the deceased Primary Beneficiary shall be added, pro rata, to the

other separate IRAs created hereunder. The identity of the Primary Beneficiaries under this

Beneficiary Designation and the shares used to establish each of their separate IRAs under this

Section 2, shall be provided to the Custodian by the Personal Representative of the Participant’s

estate as soon as practicable following the Participant’s death and the Custodian shall have no

liability whatsoever with regard to said division. Said division shall occur as soon as practicable

following the death of the Participant and shall be effective upon the death of the Participant.

3. Separate IRAs. Each Primary Beneficiary’s separate IRA under Section 2 shall be

and remain a separate IRA in the name of the deceased Participant (F/B/O the Primary

Beneficiary). Each separate IRA shall thereafter be paid to its respective Primary Beneficiary in

annual payments equal to the required minimum distribution under IRC §401(a)(9) to be initiated

and calculated by the Primary Beneficiary; provided, however, that at any time or times

requested by the Primary Beneficiary, the Custodian shall distribute to said Primary Beneficiary,

from his or her separate IRA, such amount as said Primary Beneficiary may request in writing.

Upon written request by the Primary Beneficiary of a separate IRA hereunder, the Custodian

Page 70: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 68 -

shall transfer said Primary Beneficiary's separate IRA to such other trust or custodial account

specified by said Primary Beneficiary; provided that the transferee account is an IRA under IRC

§408. Each Primary Beneficiary shall have the power to determine the investment of his or her

separate IRA. In the event a Primary Beneficiary of a separate IRA dies before his or her IRA

has been distributed to said deceased Primary Beneficiary, the remaining assets in said IRA of

said deceased Primary Beneficiary shall be divided into separate IRAs for the beneficiary or

beneficiaries designated by said deceased Primary Beneficiary on a form reasonably acceptable

to the Custodian; or, to the extent a beneficiary has not been so designated, the deceased Primary

Beneficiary’s IRA shall be divided, per stirpes, into separate IRAs for the lineal descendants of

the deceased Primary Beneficiary who survive said Primary Beneficiary or, if none, per stirpes

for the then living lineal descendants of the Participant, the identity of whom and shares of which

the Personal Representative of the deceased Primary Beneficiary’s estate shall provide to the

Custodian. Distributions from an IRA created for a beneficiary of a deceased Primary

Beneficiary shall occur as required by IRC §401(a)(9) and shall be calculated and initiated by

said beneficiary. Moreover, said beneficiary shall, with respect to his or her IRA, have all rights

of a Primary Beneficiary described above relative to additional withdrawals, transfer and

investment control.

4. Miscellaneous. By entering into this Beneficiary Designation Agreement, the IRA

Custodian does hereby acknowledge and agree that:

(a) No Required Distributions Other than Minimum Distributions. Other than

the minimum distributions required by law, neither the Participant nor any beneficiary

shall be required to take any distribution at any time.

(b) Responsibility for Minimum Distributions. Any minimum distribution

shall be initiated and calculated by the Participant while living and, after the Participant's

death, the beneficiary with respect to his or her separate IRA. The Custodian shall be

under no obligation to initiate or calculate any minimum distribution.

(c) Modification of IRA Trust. By its acceptance of this Beneficiary

Designation Agreement, the Custodian agrees that its printed IRA Agreement is amended

so that the provisions of this Beneficiary Designation Agreement shall control in the

event of any difference or conflict between this Beneficiary Designation Agreement and

the terms of the printed IRA Agreement. Accordingly, this Beneficiary Designation

Agreement amends the printed IRA Agreement to include provisions not otherwise in the

printed IRA Agreement and to supersede and replace any provisions otherwise

inconsistent with the provisions of this Beneficiary Designation Agreement; provided,

however, that nothing herein that would be contrary to the requirements of IRC §408 or

§401(a)(9) relative to an individual retirement account and distributions therefrom shall

be effective.

(d) Agreement Revocable. This Beneficiary Designation Agreement may be

altered, changed or revoked during the Participant's lifetime. Upon the Participant's death,

this Beneficiary Designation Agreement shall become irrevocable.

Page 71: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 69 -

DATED this ___ day of _______________, 20___.

Participant:

IRA Custodian:

By:

Its:

Page 72: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 70 -

§13.23. Appendix A-1—Primary Beneficiary: Surviving Spouse—Secondary Beneficiary:

Children

BENEFICIARY DESIGNATION

The undersigned “IRA Custodian” (____________________________) and the

undersigned “ Participant” ______________________________ do hereby agree as follows with

respect to the IRA Custodial (“Account”) maintained by the IRA Custodian on behalf of the

Participant:

1. Primary Beneficiary. If _________________________ (spouse) survives the

Participant, the beneficiary of the Account shall be ______________________.

_______________________ may roll over all or any portion of the Account payable to her

hereunder into an IRA in _________________________’s name, whether or not the custodian or

trustee of the recipient IRA is the IRA Custodian hereunder. The IRA Custodian shall fully

cooperate with _________________________ with regard to such a rollover.

2. Contingent Beneficiaries. In the event _________________________ does not

survive the Participant, the Secondary Beneficiaries of the Participant’s Account and their

respective shares for purposes of Section 2.a herein, shall be as follows:

Beneficiary Percentage

_________________________ ___%

_________________________ ___%

a. Separate IRAs. The Participant’s Account shall be divided into separate

IRAs for the Secondary Beneficiaries with each said Secondary Beneficiary’s IRA to

have allocated to it the percentage of the Participant’s Account designated above. If a

Secondary Beneficiary fails to survive the Participant but leaves at least one lineal

descendant who survives the Participant, said Secondary Beneficiary’s IRA shall be

further divided, per stirpes, into separate IRAs for said deceased Secondary Beneficiary’s

lineal descendants who survive the Participant (who shall be considered Secondary

Beneficiaries hereunder); or, if the deceased Secondary Beneficiary leaves no lineal

descendant surviving the Participant, the percentage of the Participant’s Account as

designated under this section for the deceased Secondary Beneficiary shall be added, pro

rata, to the other separate IRAs created hereunder. The identity of the Secondary

Beneficiaries under this Beneficiary Designation and the shares used to establish each of

their separate IRAs under this section shall be provided to the Custodian by the Personal

Representative of the Participant’s estate as soon as practicable following the

Participant’s death and the Custodian shall have no liability whatsoever with regard to

said division. Said division shall occur as soon as practicable following the death of the

Participant and shall be effective upon the death of the Participant.

b. Separate IRAs. Each Secondary Beneficiary’s separate IRA under this

section shall be and remain a separate IRA in the name of the deceased Participant

(F/B/O the Secondary Beneficiary). Each separate IRA shall thereafter be paid to its

Page 73: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 71 -

respective Secondary Beneficiary in annual payments equal to the required minimum

distribution under IRC §401(a)(9) to be initiated and calculated by the Secondary

Beneficiary; provided, however, that at any time or times requested by the Secondary

Beneficiary, the Custodian shall distribute to said Secondary Beneficiary, from his or her

separate IRA, such amount as said Secondary Beneficiary may request in writing. Upon

written request by the Secondary Beneficiary of a separate IRA hereunder, the Custodian

shall transfer said Secondary Beneficiary's separate IRA to such other trust or custodial

account specified by said Secondary Beneficiary; provided that the transferee account is

an IRA under IRC §408. Each Secondary Beneficiary shall have the power to determine

the investment of his or her separate IRA. In the event a Secondary Beneficiary of a

separate IRA dies before his or her IRA has been distributed to said deceased Secondary

Beneficiary, the remaining assets in said IRA of said deceased Secondary Beneficiary

shall be divided into separate IRAs for the beneficiary or beneficiaries designated by said

deceased Secondary Beneficiary on a form reasonably acceptable to the Custodian; or, to

the extent a beneficiary has not been so designated, the deceased Secondary Beneficiary’s

IRA shall be divided, per stirpes, into separate IRAs for the lineal descendants of the

deceased Secondary Beneficiary who survive said Secondary Beneficiary or, if none, per

stirpes for the then living lineal descendants of the Participant, the identity of whom and

shares of which the Personal Representative of the deceased Secondary Beneficiary’s

estate shall provide to the Custodian. Distributions from an IRA created for a beneficiary

of a deceased Secondary Beneficiary shall occur as required by IRC §401(a)(9) and shall

be calculated and initiated by said beneficiary. Moreover, said beneficiary shall, with

respect to his or her IRA, have all rights of a Secondary Beneficiary described above

relative to additional withdrawals, transfer and investment control.

3. Miscellaneous. By entering into this Beneficiary Designation Agreement, the IRA

Custodian does hereby acknowledge and agree that:

a. No Required Distributions Other than Minimum Distributions. Other than

the minimum distributions required by law, neither the Participant nor any beneficiary

shall be required to take any distribution at any time.

b. Responsibility for Minimum Distributions. Any minimum distribution

shall be initiated and calculated by the Participant while living and, after the Participant's

death, the beneficiary with respect to his or her separate IRA. The Custodian shall be

under no obligation to initiate or calculate any minimum distribution.

c. Modification of IRA Trust. By its acceptance of this Beneficiary

Designation Agreement, the Custodian agrees that its printed IRA Agreement is amended

so that the provisions of this Beneficiary Designation Agreement shall control in the

event of any difference or conflict between this Beneficiary Designation Agreement and

the terms of the printed IRA Agreement. Accordingly, this Beneficiary Designation

Agreement amends the printed IRA Agreement to include provisions not otherwise in the

printed IRA Agreement and to supersede and replace any provisions otherwise

inconsistent with the provisions of this Beneficiary Designation Agreement; provided,

however, that nothing herein that would be contrary to the requirements of IRC §408 or

Page 74: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 72 -

§401(a)(9) relative to an individual retirement account and distributions therefrom shall

be effective.

d. Agreement Revocable. This Beneficiary Designation Agreement may be

altered, changed or revoked during the Participant's lifetime. Upon the Participant's death,

this Beneficiary Designation Agreement shall become irrevocable.

Dated this _____ day of ______________________, 20___.

Participant:

Spouse:

IRA Custodian:

By:

Its:

Page 75: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 73 -

§13.23. Appendix A-2—Short Form Designations

BENEFICIARY DESIGNATION

• Primary Beneficiary. [Spouse]; provided, however, that any portion of the account

disclaimed by [spouse] shall pass to the [spouse] Trust under Article V of the Last Will of

______________________.

• Secondary Beneficiary. If [spouse] does not survive the account holder, the account shall

be divided into separate accounts; one for each child of the account holder's who survives

the account holder and one for each deceased child of the account holder's who leaves at

least one lineal descendant surviving the account holder. The separate accounts with

respect to a deceased child of the account holder's who leaves a lineal descendant

surviving the account holder shall be further divided, per stirpes, into separate accounts

for the descendants of the deceased child who survive the account holder. The separate

account of any descendant of a deceased child of the account holder's who is then under

thirty (30) years of age shall be payable to said descendant's trust under Article VI.B of

the Last Will of ______________________.

Page 76: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 74 -

§13.24. Appendix B—Revocable Living Trust Provisions (Non-Pro Rata Powers)

Division of Trust Property Upon Death of First Grantor. As soon as practicable after the

death of the first of the Grantors to die, the Trustee shall divide this Trust into two (2) separate

shares, one separate trust share to be designated the "Surviving Grantor's Trust", and the other

separate trust share to be designated the "Family Trust". The Surviving Grantor's Trust shall

consist of the surviving Grantor's community property and separate property interests held by

(or, as a result of the death of the deceased Grantor distributed to), this Trust and the surviving

Grantor's separate property interest held by this Trust. The Family Trust shall consist of the

deceased Grantor's community property and separate property interests held by (or, as a result of

the death of the deceased Grantor distributed to), this Trust.

Non-Pro Rata Division/Retirement Benefits. The Trustee (and the deceased Grantors’

Personal Representative) are fully and completely authorized to agree with the surviving Grantor

to make an approximately equal non-pro rata division of the Grantors’ former community

property (both probate and non-probate); provided, however, that property shall be exchanged as

its exchange date value. In making said non-pro rata division, the Grantors intend, to the

maximum extent possible, that any right to “Retirement Benefits” (individual retirement account,

annuity, bond or SEPP under IRC §408, a tax deferred annuity under IRC §403, or a retirement

plan under IRC §401) shall be allocated to the Surviving Grantor’s Trust. Notwithstanding any

other provision of this Trust to the contrary, the Surviving Grantor shall have the unilateral right

to withdraw, at any time, any right to a Retirement Benefit allocated to the Surviving Grantor’s

Trust under the sentence immediately preceding. In the event that, notwithstanding the

preceding, a right to a Retirement Benefit is allocated to the Family Trust, then, it is the

Grantor’s intent, that, to the maximum extent possible, the same be allocated to the portion of

said Family Trust for which a federal estate tax marital deduction is elected; provided, however,

immediately after said allocation, said right shall be distributed to the Surviving Grantor,

outright.

Retirement Benefits. Notwithstanding any other provision of this Trust, the Trustee may

not distribute to or for the benefit of either Grantor’s estate, any charity or any other non-

individual beneficiary any Retirement Benefits. It is the Grantor’s intent that all Retirement

Benefits be distributed to or held for only individual beneficiaries, within the meaning of Section

401(a)(9) and applicable regulations. Moreover, notwithstanding any other provision of this

Trust or state law, a person’s “lineal descendants” for purposes of this instrument shall not

include any individual who is a lineal descendant by virtue of legal adoption if such individual

(i) was adopted after the Grantor’s death and (ii) is older than the oldest beneficiary of this Trust

who is living on said date. Any power of appointment under a Trust hereunder shall not be

exercisable with respect to Retirement Benefits, to the extent the existence or exercise of said

power would result in the Trust failing to have “identifiable beneficiaries” for purposes of the

qualified Trust Rules of Treasury Regulation 1.401(a)(9)-4QA5 or to the extent the existence or

exercise of said power would result in the Trust being considered to have a beneficiary older than

the oldest beneficiary of this Trust who is living on the date specified above. [As an alternative,

this provision could specify that, to the extent a Trust becomes a beneficiary of a Retirement

Benefit, any withdrawals or distributions from the Plan or IRA will be distributed to the income

beneficiary. See Reg. §1.401(a)(9)-5QA7(c)(3)(Ex.2).]

Page 77: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 75 -

§13.25. Appendix C—Beneficiary Designation

Designation of Surviving Spouse (With Disclaimer Opportunity) and Contingent Beneficiary

“Safe Harbor” Trust for Children

The undersigned "IRA Custodian" (_____________________) and the undersigned

"Participant" (____________________) do hereby agree as follows with respect to the IRA

Custodial ("Account") maintained by the IRA Custodian on behalf of the Participant:

1. Primary Beneficiary. If _________________ survives the Participant, the

beneficiary of the Account shall be _________________; provided, however, that any portion of

the account disclaimed by her shall pass to the _________________ Family Trust.

2. Contingent Beneficiary. In the event _________________ does not survive the

Participant, the Account shall be divided into equal accounts: one account for each child of the

Participant’s who survives the Participant and one account for each child of the Participant’s who

fails to survive the Participant but who leaves at least one lineal descendant of his or hers

surviving the Participant. The account of a surviving child of the Participant’s shall be payable to

said child as provided herein. The account of a deceased child of the Participant’s who leaves at

least one lineal descendant surviving the Participant, shall be divided, per stirpes, into separate

accounts, for the descendants of said deceased child who survive the Participant and said

separate accounts shall be payable to the respective beneficiaries thereof as provided herein.

3. Additional Provisions. By entering into this Beneficiary Designation Agreement,

the IRA Custodian does hereby acknowledge and agree that:

a. No Required Distributions Other than Minimum Distributions. Other than

the minimum distributions described herein (or required by law) neither the Participant

nor any beneficiary shall be required to take any distribution at any time.

b. Computation of Minimum Distributions. If _________________

predeceases the Participant, then the shares under Section 2 shall be divided into separate

IRAs under Reg. 1.401(a)(9)-8QA2; and minimum distributions to each beneficiary of a

separate account shall be determined with reference to said beneficiary's life expectancy.

c. Special Rules for Contingent Beneficiaries. The identity of the

beneficiaries under this Section 2, and their respective accounts, shall be provided to the

IRA Custodian by the personal representative of the Participant's estate as soon as

practicable following Participant's death. Each such separate account shall thereafter be

paid to its respective beneficiary in annual payments equal to the required minimum

distribution under IRC §401(a)(9) to be initiated and calculated by the beneficiary;

provided, however, that at any time or times requested by the beneficiary of said separate

account, the IRA Custodian shall distribute to said beneficiary, from his or her separate

account, such amount as said beneficiary may request in writing. Upon written request by

the beneficiary of a separate account hereunder, the IRA Custodian shall transfer said

beneficiary's separate account to such other trust or custodial account specified by said

beneficiary; provided that the transferee account is an IRA under IRC §408. After the

Page 78: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 76 -

death of the Participant, the beneficiary shall have the power to determine the investment

of his or her Account. The foregoing provisions of this Section 3(c) notwithstanding,

however, during any period in which a child of the Participant for whom a separate

account is established hereunder is under _________ (___) years of age (or a descendant

of a deceased child of the Participants’ for whom a separate account is established

hereunder is under ____________ (___) years of age), the Trustee of said beneficiary’s

separate trust fund under the _________________ Family Trust shall have the sole and

exclusive right to exercise the powers enumerated in this Section 3(c) on behalf of said

beneficiary; provided, however, that any distribution (but not IRA to IRA transfer) from

said beneficiary’s account shall be made to said beneficiary. [The foregoing sentence is

an example of a “Conduit Trust” format.]

d. Spousal Rollover. If _________________ survives the Participant, the

Account payable to her under Section 1 herein, may be rolled over into an IRA in

_________________'s name, whether or not the custodian or trustee of the recipient IRA

is the IRA Custodian. The IRA Custodian will fully cooperate with _________________

with regard to such a rollover.

e. Responsibility for Minimum Distributions. Any minimum distribution

shall be initiated and calculated by the Participant while living and, after the Participant's

death, the beneficiary. The Custodian shall be under no obligation to initiate or calculate

any minimum distribution.

f. Modification of IRA Trust. By its acceptance of this beneficiary

Designation Agreement, the IRA Custodian agrees that its printed IRA Trust document is

amended so that the provisions of this Beneficiary Designation Agreement shall control

in the event of any difference or conflict between this Beneficiary Designation

Agreement and the terms of the printed IRA Trust document. Accordingly, this

Beneficiary Designation Agreement amends the printed IRA Trust document to include

provisions not otherwise in the printed IRA Trust document and to supersede and replace

any provisions otherwise inconsistent with the provisions of this Beneficiary Designation

Agreement; provided, however, that nothing herein that would be contrary to the

requirements of IRC §408 or §401(a)(9) relative to an individual retirement account and

distributions therefrom shall be effective.

Page 79: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 77 -

g. Agreement Revocable. This Beneficiary Designation Agreement may be

altered, changed or revoked during the Participant's lifetime. Upon the Participant's death,

this Beneficiary Designation Agreement shall become irrevocable.

Dated this _____ day of ______________________, 20___.

Participant:

Spouse of Participant:

IRA Custodian:

By:

Its:

Page 80: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 78 -

§13.26. Appendix D—Will Provisions (Non-Pro Rata Powers)

Allocation of Retirement Benefits in Non-Pro Rata Division. In the furtherance of the

settlement of my estate and all Trusts created under this Will, I fully and completely authorize

my Personal Representative and the Trustee of any Trust created by this Will to agree with my

wife to make an approximate equal division of our former community property (both probate and

non-probate). Therefore, my Personal Representative and Trustee may exchange with my wife

any interest I may have in community property for my wife’s community property. The property

shall be exchanged at its exchange date value. It is my intent that, to the extent possible, in the

process of any non-pro rata division of community property, any interest in an IRA under IRC

§408, a tax deferred annuity under IRC §403 or a retirement plan under IRC §401 be allocated to

my wife. Moreover, it is my intent that, in any non-pro rata distribution of assets under

Article ____, above, to the extent possible, any such benefits be allocated to that portion of the

Trust that would be included in my wife’s estate if she died immediately before such division;

provided, however, that immediately after such allocation, the right to such assets shall be

distributed, outright, to my wife.

Page 81: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 79 -

§13.27. Appendix E—Sample QTIP Beneficiary Designation Agreement

The undersigned _______________________ (“Account Holder”) and the undersigned

SEI Investments (“Custodian”) do hereby agree as follows with respect to the Account Holder’s

IRA maintained by Custodian, account number _____________________ (“Account”).

1. Primary Beneficiaries. If ______________________ (“____________”) survives the

Account Holder, the Beneficiary of the Account shall be the Trust under Section 5.2 of

the Account Holder's Will (the “Marital Trust”). Said IRA shall be known as the

“Marital Trust IRA” and shall be payable as follows:

(a) Distributions. At least annually, the Custodian shall distribute from the

Marital Trust IRA to the Marital Trust the greater of (A) all of the net income of the

Account or (B) the required minimum distribution (“RMD”) under Section 401(a)(9) of

the Internal Revenue Code of 1986 (IRC) required for such year. In addition, the

Custodian shall distribute to the Marital Trust from the Marital Trust IRA so much of

said IRA as the Trustee of the Marital Trust may, from time to time, request in writing.

Under the terms of the Marital Trust, the Trustee of the Marital Trust shall distribute to

___________________, no less frequently than annually, that amount of the foregoing as

equals the net income of the Marital Trust IRA. For the purposes of this paragraph, “net

income” shall be determined by the Trustee of the Marital Trust in accordance with

Washington State law and the Marital Trust and the Custodian shall have no liability for

such determination. Moreover, for the purposes of the foregoing, it is the Account

Holder’s intent that the Marital Trust shall be considered a “qualified trust” under Reg.

1.401(a)(9)-5 and RMDs from the Marital Trust IRA shall be computed with reference to

the life expectancy of ______________________ under Reg. 1.401(a)(9)-5QA5(c)(1).

(b) Account Holder’s Intent. The Account Holder intends that the Marital

Trust IRA and the Marital Trust qualify for the marital deduction allowable in

determining the federal estate tax upon the Account Holder’s estate. No provision

contained in this Beneficiary Designation Agreement or the IRA plan which would

prevent the Marital Trust IRA from so qualifying shall apply to the Marital Trust IRA

and it is the Account Holder’s intent that any court having jurisdiction over this

Beneficiary Designation, the IRA Plan and the Marital Trust construe said documents

accordingly.

2. Contingent Beneficiaries. In the event _____________________ does not

survive the Account Holder, the contingent beneficiaries and their shares shall be as

follows:

3. Miscellaneous.

(a) Transfers. Upon written request by the Trustee of the Marital Trust, the

Custodian shall transfer said trust’s IRA to another institution specified by the trustee

provided that (i) the transferee account is an IRA under §408 and (ii) prior to said

transfer, the transferee agrees, in writing, to be bound by all terms and provisions of this

Beneficiary Designation Agreement.

Page 82: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 80 -

(b) Limitations. Nothing herein that would be contrary to the requirements of

IRC §408 or §401(a)(9) relative to an individual retirement account and RMDs therefrom

shall be effective.

(c) Agreement Revocable. This Beneficiary Designation Agreement may be

altered, changed or revoked by the Account Holder during his lifetime and shall become

irrevocable on his death.

DATED this ___ day of _______________, 20__.

Participant: ___________________________

Spouse of Participant: __________________________

Custodian: _________________________________

By ______________________________

_____________, Its______________

Page 83: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 81 -

§13.28 Appendix F—Sample IRA QTIP Trust Provisions

MARITAL IRA TRUST

IRAs Payable to The Marital Trust of ____________________. The following shall

apply with respect to any and all IRAs of which the Marital Trust of ___________________ has

been designated as beneficiary (and the following shall supersede any contrary provision of this

Will):

a. Withdrawals From IRA. I contemplate that I may designate the

____________________________ Trust as beneficiary of a portion of one or more

individual retirement accounts ("IRA") in my name. To the extent an IRA is payable to

the said Trust, such IRA shall be referred to herein as the "Account." The Trustee shall

withdraw from the Account and distribute to my wife, during her lifetime, in annual or

more frequent installments, all of the “Net Income” of the Account (to be determined in

the manner set forth at Section 5.1(e)(b), below). If, during any calendar year, the

withdrawal of “Net Income” does not satisfy the required minimum distribution

(“RMD”) for such calendar year under Section 401(a)(9) ("RMD"), the Trustee shall

withdraw from the Account and deposit to the Trust that amount required to satisfy the

RMD requirement for such calendar year.

b. Definition of Net Income. The Trustee shall, in accordance with the

Washington State Principal and Income Act of 2002 (RCW 11.104A et seq.) or its

successor and in a manner necessary for both the Account and this Trust to qualify for

“Q-Tip” treatment under Rev. Rul. 2006-26: (i) determine all questions as to what is

income and what is principal of the Account and the Marital Trust and (ii) to credit or

charge to income or principal or to apportion between them any receipt or gain and any

charge, disbursement or loss. The power to either (i) convert principal to income under

RCW 11.104.020 or (ii) exercise the powers given by RCW 11.104.040 with respect to

creation, modification or elimination of a “unitrust” interest shall be available to and

exercisable by the Trustee in accordance with the terms of said statutes. For the purposes

of determining the Net Income required to be distributed to my wife hereunder, the Net

Income of the Account shall be determined under the foregoing principles as though the

assets of the Account are held directly by this Trust.

c. Account Q-Tip and Minimum Distributions. With regard to the Account,

the Trustee (and/or my Personal Representative) shall (i): take any and all action so that

the Account qualifies as qualified terminable interest property under Section 2056 of the

Code; and (ii) is authorized, in the Personal Representative’s sole and absolute discretion,

to elect that any part or all of the Account be treated as qualified terminable interest

property for the purpose of qualifying for the marital deduction allowable in determining

the federal estate tax and/or Washington State estate tax upon my estate. Further, the

Trustee of the Trust shall: (i) at my wife’s request, direct the Custodian of the Account to

promptly convert unproductive or under productive assets of the Account to productive

assets; and (ii) take all other actions and do all things as may be necessary so that the

Account and the Trust be treated as qualified terminable interest property for the purpose

of qualifying for the marital deduction allowable in determining the federal estate tax

Page 84: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 82 -

and/or Washington State estate tax upon my estate. I hereby direct that no provision

contained herein which would prevent the Account or this Trust from so qualifying shall

apply to the Account or this Trust. It is my intention that any court having jurisdiction

over this Trust construe it accordingly.

d. RMD Calculation. I intend that RMDs from the Account be calculated

with reference to my wife’s life expectancy. Therefore, it is my intent that the Trust be a

Qualified Trust within the meaning of Reg. 1.401(a)(9)-4QA5 and that my wife be

considered the oldest beneficiary of the Trust for RMD purposes (without application of

the “conduit trust” rules of Reg. 1.401(a)(9)-5QA7(c)(3) (Ex. 2). To that end, the

following shall apply: (i) during my wife’s lifetime, the Trustee shall not make any

distributions from the Trust (or cause distributions from the Account) to anyone other

than my wife as set forth in this Section 5, (ii) the Trustee may not distribute any portion

of the Account to or for the benefit of my estate or use the Account for payment of my

debts, taxes, expenses of administration, claims against my estate or payment of taxes due

on account of my death, (iii) following my wife’s death, no portion of the Account may

be distributed to any individual beneficiary older than my wife or, subject to contrary and

superseding federal or state law, a non-individual; and, (iv) where used in this trust, the

terms children, lineal descendants or words of similar import shall exclude anyone older

than my wife.

(e) Division of Account and Transfers Following my Wife’s Death. To

facilitate the division and distribution set forth at Section 5.3 of this Will following my

wife’s death, the Trustee shall establish separate IRAs from the Account for each

beneficiary under said Section 5.3. Each such separate IRA will receive said

beneficiary’s percentage portion of the Account as determined under Section 5.3. Each

such IRA shall be in my name (deceased) for the benefit of (“f/b/o”) the beneficiary for

whom the IRA is established. The actual division shall occur by way of a direct transfer

from the Account to each of the separate IRAs in accordance with IRC §402(c)(11).

With respect to a separate IRA payable to a trust under Section 5.3(4) of this Will, any

amount withdrawn from said IRA by the Trustee shall be paid to the beneficiary of the

trust as it is my intent that said trust qualify as a conduit trust within the meaning of

Reg. 1.401(a)(9)-5QA7(c)(3) (Ex. 2).

Page 85: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 83 -

§13.29. Appendix G—Specific Bequest of Non-Working Spouse’s Community Interest

IRAs/Retirement Plans of Wife. If my wife survives me, I hereby give, devise and

bequeath to her any community property interest I may have in any of the following held in my

wife's name or for her benefit: An individual retirement account, annuity or bond under IRC

§408, a tax deferred annuity under IRC §403 or a retirement plan under IRC §401. To the extent

my wife should disclaim any interest hereunder, said disclaimed amount shall pass as part of the

residue of my estate.

Page 86: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 84 -

§13.30. Appendix H—Will Provisions – Miscellaneous Retirement Plan IRA Matters

Retirement Benefits.

1. Retirement Benefits Defined. For the purposes of this Article ___, the term

“Retirement Benefits” shall mean and refer to any plan or account which is subject to the

minimum distribution rules of IRC §401(a)(9).

2. Non-Pro Rata Division. The Trustee of the [spousal trust] shall have the full and

complete power to agree with [my spouse] to an equal division, on a non-pro rata basis, of our

former community property. In this regard, it is my intent that, to the extent practicable and

advisable under federal tax law, any Retirement Benefits be allocated to [my spouse] as her share

of our former community property.

3. Retirement Benefits Allocated to [spousal trust]. To the extent Retirement

Benefits remain payable to the [spousal trust] after any non-pro rata division of our former

community property, it is my intent that required minimum distributions (“RMD”) be calculated

with reference to the life expectancy of [spouse]. Therefore it is my intent that this Trust be a

Qualified Trust within the meaning of Reg. 1.401(a)(9)-4QA5 and that my [husband/wife] be

considered the oldest beneficiary of the Trust for RMD purposes (without application of the

"conduit trust" rules of Reg. 1.401(a)(9)-5QA7(c)(3) (Ex. 2). To that end, the following shall

apply: (i) during my [husband/wife]'s lifetime, the Trustee shall not make any distributions from

the Trust (or cause distributions from a Retirement Benefit) to anyone other than my

[husband/wife] as set forth by Article V, above, (ii) the Trustee may not distribute any portion of

a Retirement Benefit to or for the benefit of my [husband/wife]'s estate or use a Retirement

Benefit for payment of my debts, taxes, expenses of administration, claims against my estate or

payment of taxes due on account of my death, (iii) no portion of a Retirement Benefit may be

distributed to any individual beneficiary older than my [husband/wife], or, subject to contrary

and superseding federal or state law, a non-individual; and, (iv) where used in this Trust, the

terms descendants, lineal descendants or words of similar import shall exclude anyone older than

my [husband/wife].

4. Retirement Benefits Payable to Trust for Descendant under Thirty (30) Years of

Age. To the extent any Retirement Benefits are payable to a trust for a descendant of mine under

Article ____, above, by virtue of said trust being designated beneficiary thereof, any and all

RMDs, as well as any and all other withdrawals or distributions taken by the Trustee, shall be

distributed to the beneficiary for whom the Trust is established as it is my intent that said Trust

qualify as a “conduit trust” under Reg. 1.401(a)(9)-5A7(c)(3) (ex. 2). Any provision of this Will

which would prevent said Trust from being considered a conduit trust under said regulation shall

not apply to this Trust with respect to the Retirement Benefit and provision needed for said

qualification which has been omitted from this Will shall be added under Washington state’s

Trust and Estate Dispute Resolution Act.

5. Qualified Trust. If a Retirement Benefit is payable to any Trust under this Will, it

is my intent that said Trust be considered a “qualified trust” under Reg. 1.401(a)(9). Any

provision of this Will which would result in said Trust failing to so comply, shall not apply and

Page 87: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 85 -

any provision needed for said qualification which has been omitted from this Will, shall be added

under Washington state’s Trust and Dispute Resolution Act.

6. Copy of Will to Custodian/Administrator. My Personal Representative and/or

Trustee shall provide a copy of this Will to the plan administrator or custodian of the Retirement

Benefits payable to a Trust under this Will within the time period required under Reg.

1.401(a)(9) which, as of the time of this Will is no later than October 31 of the calendar year

following the year of my death.

7. Power to Deal with Plan Administrator/Custodian. My Personal Representative

and Trustees shall each have full power and authority to request information from and provide

information to the custodian or plan administrator of any Retirement Benefit.

8. RMD for Year of Death. If, as of my death, I have not taken the full RMD for the

calendar year of my death, (i) said RMD shall be taken no later than the December 31st of the

calendar year of my death, (ii) my Personal Representative shall have the power to cause such

RMD, and (iii) said RMD shall be the property of the beneficiary of the Retirement Benefit

(subject to the conduit trust rules of Section 4, above).

9. Division of Retirement Benefits/Transfers. If a Trust created by this Will is later

divided into separate shares for additional trusts and/or individuals, the Retirement Benefits of

which said Trust is a beneficiary shall be divided into separate accounts, pro rata, according to

the respective shares to be so created. Each such account shall be in my name, deceased for the

benefit of (“f/b/o”) the individual or Trust for whom the separate account is established. Said

division shall occur by way of a direct transfer from the Retirement Benefit as it existed before

the division to each of the separate accounts. In the case of an IRA, the separate account shall be

established as separate f/b/o IRAs in the manner described above. With respect to these

successor accounts and IRAs, RMDs shall continue to be calculated in the manner as was

initially commenced following my death. Upon the attainment of an age by a child of mine for

whom a separate trust was established which age entitled said child to a portion of his or her

Trust outright, a corresponding portion of the Retirement Benefit as then so constituted shall be

directly transferred in an f/b/o account (or in the case of an IRA, a separate f/b/o IRA) in the

name of my child.

10. Non-Spouse Rollover. If the Retirement Benefit is a retirement plan (as opposed

to an IRA) and said retirement plan permits a non-spouse rollover pursuant to IRC §402(c)(11), I

direct my Trustee to complete the non-spouse rollover from said retirement plan to an IRA. Said

transferee IRA shall be fully subject to all of the foregoing provisions of this Section ____.

Under current IRS guidelines, if I should die before reaching my "required beginning date" with

respect to a retirement plan, the non-spouse rollover must be completed by the end of the

calendar year following the calendar year of my death so as to obtain with regard to the

transferee IRA the RMD calculation described at this Article ____.

Page 88: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 86 -

§13.31. Appendix I—Life Expectancy and Distribution Period Tables.

Reg. 1.401(a)(9)-9

Reg §1.401(a)(9)-9. Life expectancy and distribution period tables.

Caution: Reg. §1.401(a)(9)-9, following, is effective 1/1/2003.

Q-1. What is the life expectancy for an individual for purposes of determining required minimum

distributions under section 401(a)(9)?

A-1. The following table, referred to as the Single Life Table, is used for determining the life

expectancy of an individual:

Single Life Table

Age Life Age Life Age Life Age Life

Expectancy Expectancy Expectancy Expectancy

0 82.4 29 54.3 58 27.0 87 6.7

1 81.6 30 53.3 59 26.1 88 6.3

2 80.6 31 52.4 60 25.2 89 5.9

3 79.7 32 51.4 61 24.4 90 5.5

4 78.7 33 50.4 62 23.5 91 5.2

5 77.7 34 49.4 63 22.7 92 4.9

6 76.7 35 48.5 64 21.8 93 4.6

7 75.8 36 47.5 65 21.0 94 4.3

8 74.8 37 46.5 66 20.2 95 4.1

9 73.8 38 45.6 67 19.4 96 3.8

10 72.8 39 44.6 68 18.6 97 3.6

11 71.8 40 43.6 69 17.8 98 3.4

12 70.8 41 42.7 70 17.0 99 3.1

13 69.9 42 41.7 71 16.3 100 2.9

14 68.9 43 40.7 72 15.5 101 2.7

15 67.9 44 39.8 73 14.8 102 2.5

16 66.9 45 38.8 74 14.1 103 2.3

17 66.0 46 37.9 75 13.4 104 2.1

18 65.0 47 37.0 76 12.7 105 1.9

19 64.0 48 36.0 77 12.1 106 1.7

20 63.0 49 35.1 78 11.4 107 1.5

21 62.1 50 34.2 79 10.8 108 1.4

22 61.1 51 33.3 80 10.2 109 1.2

23 60.1 52 32.3 81 9.7 110 1.1

24 59.1 53 31.4 82 9.1 111+ 1.0

25 58.2 54 30.5 83 8.6

26 57.2 55 29.6 84 8.1

27 56.2 56 28.7 85 7.6

28 55.3 57 27.9 86 7.1

Page 89: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 87 -

Q-2. What is the applicable distribution period for an individual account for purposes of

determining required minimum distributions during an employee's lifetime under section

401(a)(9)?

A-2. Table for determining distribution period. The following table, referred to as the Uniform

Lifetime Table, is used for determining the distribution period for lifetime distributions to an

employee in situations in which the employee's spouse is either not the sole designated

beneficiary or is the sole designated beneficiary but is not more than 10 years younger than the

employee.

Uniform Lifetime Table

Age of Distribution Age of Distribution

employee period employee period

70 27.4 92 10.2

71 26.5 93 9.6

72 25.6 94 9.1

73 24.7 95 8.6

74 23.8 96 8.1

75 22.9 97 7.6

76 22.0 98 7.1

77 21.2 99 6.7

78 20.3 100 6.3

79 19.5 101 5.9

80 18.7 102 5.5

81 17.9 103 5.2

82 17.1 104 4.9

83 16.3 105 4.5

84 15.5 106 4.2

85 14.8 107 3.9

86 14.1 108 3.7

87 13.4 109 3.4

88 12.7 110 3.1

89 12.0 111 2.9

90 11.4 112 2.6

91 10.8 113 2.4

92 10.2 114 2.1

93 9.6 115+ 1.9

Q-3. What is the joint life and last survivor expectancy of an individual and beneficiary for

purposes of determining required minimum distributions under section 401(a)(9)?

A-3. The following table, referred to as the Joint and Last Survivor Table, is used for

determining the joint and last survivor life expectancy of two individuals:

Page 90: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 88 -

Joint and Last Survivor Table

AGES 0 1 2 3 4 5 6 7 8 9

0 90.0 89.5 89.0 88.6 88.2 87.8 87.4 87.1 86.8 86.5

1 89.5 89.0 88.5 88.1 87.6 87.2 86.8 86.5 86.1 85.8

2 89.0 88.5 88.0 87.5 87.1 86.6 86.2 85.8 85.5 85.1

3 88.6 88.1 87.5 87.0 86.5 86.1 85.6 85.2 84.8 84.5

4 88.2 87.6 87.1 86.5 86.0 85.5 85.1 84.6 84.2 83.8

5 87.8 87.2 86.6 86.1 85.5 85.0 84.5 84.1 83.6 83.2

6 87.4 86.8 86.2 85.6 85.1 84.5 84.0 83.5 83.1 82.6

7 87.1 86.5 85.8 85.2 84.6 84.1 83.5 83.0 82.5 82.1

8 86.8 86.1 85.5 84.8 84.2 83.6 83.1 82.5 82.0 81.6

9 86.5 85.8 85.1 84.5 83.8 83.2 82.6 82.1 81.6 81.0

10 86.2 85.5 84.8 84.1 83.5 82.8 82.2 81.6 81.1 80.6

11 85.9 85.2 84.5 83.8 83.1 82.5 81.8 81.2 80.7 80.1

12 85.7 84.9 84.2 83.5 82.8 82.1 81.5 80.8 80.2 79.7

13 85.4 84.7 84.0 83.2 82.5 81.8 81.1 80.5 79.9 79.2

14 85.2 84.5 83.7 83.0 82.2 81.5 80.8 80.1 79.5 78.9

15 85.0 84.3 83.5 82.7 82.0 81.2 80.5 79.8 79.1 78.5

16 84.9 84.1 83.3 82.5 81.7 81.0 80.2 79.5 7 8.8 78.1

17 84.7 83.9 83.1 82.3 81.5 80.7 80.0 79.2 78.5 77.8

18 84.5 83.7 82.9 82.1 81.3 80.5 79.7 79.0 78.2 77.5

19 84.4 83.6 82.7 81.9 81.1 80.3 79.5 78.7 78.0 77.3

20 84.3 83.4 82.6 81.8 80.9 80.1 79.3 78.5 77.7 77.0

21 84.1 83.3 82.4 81.6 80.8 79.9 79.1 78.3 77.5 76.8

22 84.0 83.2 82.3 81.5 80.6 79.8 78.9 78.1 77.3 76.5

23 83.9 83.1 82.2 81.3 80.5 79.6 78.8 77.9 77.1 76.3

24 83.8 83.0 82.1 81.2 80.3 79.5 78.6 77.8 76.9 76.1

25 83.7 82.9 82.0 81.1 80.2 79.3 78.5 77.6 76.8 75.9

26 83.6 82.8 81.9 81.0 80.1 79.2 78.3 77.5 76.6 75.8

27 83.6 82.7 81.8 80.9 80.0 79.1 78.2 77.4 76.5 75.6

28 83.5 82.6 81.7 80.8 79.9 79.0 78.1 77.2 76.4 75.5

29 83.4 82.6 81.6 80.7 79.8 78.9 78.0 77.1 76.2 75.4

30 83.4 82.5 81.6 80.7 79.7 78.8 77.9 77.0 76.1 75.2

31 83.3 82.4 81.5 80.6 79.7 78.8 77.8 76.9 76.0 75.1

32 83.3 82.4 81.5 80.5 79.6 78.7 77.8 76.8 75.9 75.0

33 83.2 82.3 81.4 80.5 79.5 78.6 77.7 76.8 75.9 74.9

34 83.2 82.3 81.3 80.4 79.5 78.5 77.6 76.7 75.8 74.9

35 83.1 82.2 81.3 80.4 79.4 78.5 77.6 76.6 75.7 74.8

36 83.1 82.2 81.3 80.3 79.4 78.4 77.5 76.6 75.6 74.7

37 83.0 82.2 81.2 80.3 79.3 78.4 77.4 76.5 75.6 74.6

38 83.0 82.1 81.2 80.2 79.3 78.3 77.4 76.4 75.5 74.6

39 83.0 82.1 81.1 80.2 79.2 78.3 77.3 76.4 75.5 74.5

40 82.9 82.1 81.1 80.2 79.2 78.3 77.3 76.4 75.4 74.5

41 82.9 82.0 81.1 80.1 79.2 78.2 77.3 76.3 75.4 74.4

42 82.9 82.0 81.1 80.1 79.1 78.2 77.2 76.3 75.3 74.4

Page 91: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 89 -

AGES 0 1 2 3 4 5 6 7 8 9

43 82.9 82.0 81.0 80.1 79.1 78.2 77.2 76.2 75.3 74.3

44 82.8 81.9 81.0 80.0 79.1 78.1 77.2 76.2 75.2 74.3

45 82.8 81.9 81.0 80.0 79.1 78.1 77.1 76.2 75.2 74.3

46 82.8 81.9 81.0 80.0 79.0 78.1 77.1 76.1 75.2 74.2

47 82.8 81.9 80.9 80.0 79.0 78.0 77.1 76.1 75.2 74.2

48 82.8 81.9 80.9 80.0 79.0 78.0 77.1 76.1 75.1 74.2

49 82.7 81.8 80.9 79.9 79.0 78.0 77.0 76.1 75.1 74.1

50 82.7 81.8 80.9 79.9 79.0 78.0 77.0 76.0 75.1 74.1

51 82.7 81.8 80.9 79.9 78.9 78.0 77.0 76.0 75.1 74.1

52 82.7 81.8 80.9 79.9 78.9 78.0 77.0 76.0 75.0 74.1

53 82.7 81.8 80.8 79.9 78.9 77.9 77.0 76.0 75.0 74.0

54 82.7 81.8 80.8 79.9 78.9 77.9 76.9 76.0 75.0 74.0

55 82.6 81.8 80.8 79.8 78.9 77.9 76.9 76.0 75.0 74.0

56 82.6 81.7 80.8 79.8 78.9 77.9 76.9 75.9 75.0 74.0

57 82.6 81.7 80.8 79.8 78.9 77.9 76.9 75.9 75.0 74.0

58 82.6 81.7 80.8 79.8 78.8 77.9 76.9 75.9 74.9 74.0

59 82.6 81.7 80.8 79.8 78.8 77.9 76.9 75.9 74.9 74.0

60 82.6 81.7 80.8 79.8 78.8 77.8 76.9 75.9 74.9 73.9

61 82.6 81.7 80.8 79.8 78.8 77.8 76.9 75.9 74.9 73.9

62 82.6 81.7 80.7 79.8 78.8 77.8 76.9 75.9 74.9 73.9

63 82.6 81.7 80.7 79.8 78.8 77.8 76.8 75.9 74.9 73.9

64 82.5 81.7 80.7 79.8 78.8 77.8 76.8 75.9 74.9 73.9

65 82.5 81.7 80.7 79.8 78.8 77.8 76.8 75.8 74.9 73.9

66 82.5 81.7 80.7 79.7 78.8 77.8 76.8 75.8 74.9 73.9

67 82.5 81.7 80.7 79.7 78.8 77.8 76.8 75.8 74.9 73.9

68 82.5 81.6 80.7 79.7 78.8 77.8 76.8 75.8 74.8 73.9

69 82.5 81.6 80.7 79.7 78.8 77.8 76.8 75.8 74.8 73.9

70 82.5 81.6 80.7 79.7 78.8 77.8 76.8 75.8 74.8 73.9

71 82.5 81.6 80.7 79.7 78.7 77.8 76.8 75.8 74.8 73.8

72 82.5 81.6 80.7 79.7 78.7 77.8 76.8 75.8 74.8 73.8

73 82.5 81.6 80.7 79.7 78.7 77.8 76.8 75.8 74.8 73.8

74 82.5 81.6 80.7 79.7 78.7 77.8 76.8 75.8 74.8 73.8

75 82.5 81.6 80.7 79.7 78.7 77.8 76.8 75.8 74.8 73.8

76 82.5 81.6 80.7 79.7 78.7 77.8 76.8 75.8 74.8 73.8

77 82.5 81.6 80.7 79.7 78.7 77.7 76.8 75.8 74.8 73.8

78 82.5 81.6 80.7 79.7 78.7 77.7 76.8 75.8 74.8 73.8

79 82.5 81.6 80.7 79.7 78.7 77.7 76.8 75.8 74.8 73.8

80 82.5 81.6 80.7 79.7 78.7 77.7 76.8 75.8 74.8 73.8

81 82.4 81.6 80.7 79.7 78.7 77.7 76.8 75.8 74.8 73.8

82 82.4 81.6 80.7 79.7 78.7 77.7 76.8 75.8 74.8 73.8

83 82.4 81.6 80.7 79.7 78.7 77.7 76.8 75.8 74.8 73.8

84 82.4 81.6 80.7 79.7 78.7 77.7 76.8 75.8 74.8 73.8

85 82.4 81.6 80.6 79.7 78.7 77.7 76.8 75.8 74.8 73.8

86 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

Page 92: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 90 -

AGES 0 1 2 3 4 5 6 7 8 9

87 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

88 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

89 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

90 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

91 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

92 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

93 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

94 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

95 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

96 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

97 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

98 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

99 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

100 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

101 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

102 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

103 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

104 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

105 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

106 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

107 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

108 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

109 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

110 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

111 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

112 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

113 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

114 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

115+ 82.4 81.6 80.6 79.7 78.7 77.7 76.7 75.8 74.8 73.8

AGES 10 11 12 13 14 15 16 17 18 19

10 80.0 79.6 79.1 78.7 78.2 77.9 77.5 77.2 76.8 76.5

11 79.6 79.0 78.6 78.1 77.7 77.3 76.9 76.5 76.2 75.8

12 79.1 78.6 78.1 77.6 77.1 76.7 76.3 75.9 75.5 75.2

13 78.7 78.1 77.6 77.1 76.6 76.1 75.7 75.3 74.9 74.5

14 78.2 77.7 77.1 76.6 76.1 75.6 75.1 74.7 74.3 73.9

15 77.9 77.3 76.7 76.1 75.6 75.1 74.6 74.1 73.7 73.3

16 77.5 76.9 76.3 75.7 75.1 74.6 74.1 73.6 73.1 72.7

17 77.2 76.5 75.9 75.3 74.7 74.1 73.6 73.1 72.6 72.1

18 76.8 76.2 75.5 74.9 74.3 73.7 73.1 72.6 72.1 71.6

19 76.5 75.8 75.2 74.5 73.9 73.3 72.7 72.1 71.6 71.1

20 76.3 75.5 74.8 74.2 73.5 72.9 72.3 71.7 71.1 70.6

21 76.0 75.3 74.5 73.8 73.2 72.5 71.9 71.3 70.7 70.1

22 75.8 75.0 74.3 73.5 72.9 72.2 71.5 70.9 70.3 69.7

Page 93: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 91 -

AGES 10 11 12 13 14 15 16 17 18 19

23 75.5 74.8 74.0 73.3 72.6 71.9 71.2 70.5 69.9 69.3

24 75.3 74.5 73.8 73.0 72.3 71.6 70.9 70.2 69.5 68.9

25 75.1 74.3 73.5 72.8 72.0 71.3 70.6 69.9 69.2 68.5

26 75.0 74.1 73.3 72.5 71.8 71.0 70.3 69.6 68.9 68.2

27 74.8 74.0 73.1 72.3 71.6 70.8 70.0 69.3 68.6 67.9

28 74.6 73.8 73.0 72.2 71.3 70.6 69.8 69.0 68.3 67.6

29 74.5 73.6 72.8 72.0 71.2 70.4 69.6 68.8 68.0 67.3

30 74.4 73.5 72.7 71.8 71.0 70.2 69.4 68.6 67.8 67.1

31 74.3 73.4 72.5 71.7 70.8 70.0 69.2 68.4 67.6 66.8

32 74.1 73.3 72.4 71.5 70.7 69.8 69.0 68.2 67.4 66.6

33 74.0 73.2 72.3 71.4 70.5 69.7 68.8 68.0 67.2 66.4

34 73.9 73.0 72.2 71.3 70.4 69.5 68.7 67.8 67.0 66.2

35 73.9 73.0 72.1 71.2 70.3 69.4 68.5 67.7 66.8 66.0

36 73.8 72.9 72.0 71.1 70.2 69.3 68.4 67.6 66.7 65.9

37 73.7 72.8 71.9 71.0 70.1 69.2 68.3 67.4 66.6 65.7

38 73.6 72.7 71.8 70.9 70.0 69.1 68.2 67.3 66.4 65.6

39 73.6 72.7 71.7 70.8 69.9 69.0 68.1 67.2 66.3 65.4

40 73.5 72.6 71.7 70.7 69.8 68.9 68.0 67.1 66.2 65.3

41 73.5 72.5 71.6 70.7 69.7 68.8 67.9 67.0 66.1 65.2

42 73.4 72.5 71.5 70.6 69.7 68.8 67.8 66.9 66.0 65.1

43 73.4 72.4 71.5 70.6 69.6 68.7 67.8 66.8 65.9 65.0

44 73.3 72.4 71.4 70.5 69.6 68.6 67.7 66.8 65.9 64.9

45 73.3 72.3 71.4 70.5 69.5 68.6 67.6 66.7 65.8 64.9

46 73.3 72.3 71.4 70.4 69.5 68.5 67.6 66.6 65.7 64.8

47 73.2 72.3 71.3 70.4 69.4 68.5 67.5 66.6 65.7 64.7

48 73.2 72.2 71.3 70.3 69.4 68.4 67.5 66.5 65.6 64.7

49 73.2 72.2 71.2 70.3 69.3 68.4 67.4 66.5 65.6 64.6

50 73.1 72.2 71.2 70.3 69.3 68.4 67.4 66.5 65.5 64.6

51 73.1 72.2 71.2 70.2 69.3 68.3 67.4 66.4 65.5 64.5

52 73.1 72.1 71.2 70.2 69.2 68.3 67.3 66.4 65.4 64.5

53 73.1 72.1 71.1 70.2 69.2 68.3 67.3 66.3 65.4 64.4

54 73.1 72.1 71.1 70.2 69.2 68.2 67.3 66.3 65.4 64.4

55 73.0 72.1 71.1 70.1 69.2 68.2 67.2 66.3 65.3 64.4

56 73.0 72.1 71.1 70.1 69.1 68.2 67.2 66.3 65.3 64.3

57 73.0 72.0 71.1 70.1 69.1 68.2 67.2 66.2 65.3 64.3

58 73.0 72.0 71.0 70.1 69.1 68.1 67.2 66.2 65.2 64.3

59 73.0 72.0 71.0 70.1 69.1 68.1 67.2 66.2 65.2 64.3

60 73.0 72.0 71.0 70.0 69.1 68.1 67.1 66.2 65.2 64.2

61 73.0 72.0 71.0 70.0 69.1 68.1 67.1 66.2 65.2 64.2

62 72.9 72.0 71.0 70.0 69.0 68.1 67.1 66.1 65.2 64.2

63 72.9 72.0 71.0 70.0 69.0 68.1 67.1 66.1 65.2 64.2

64 72.9 71.9 71.0 70.0 69.0 68.0 67.1 66.1 65.1 64.2

65 72.9 71.9 71.0 70.0 69.0 68.0 67.1 66.1 65.1 64.2

66 72.9 71.9 70.9 70.0 69.0 68.0 67.1 66.1 65.1 64.1

Page 94: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 92 -

AGES 10 11 12 13 14 15 16 17 18 19

67 72.9 71.9 70.9 70.0 69.0 68.0 67.0 66.1 65.1 64.1

68 72.9 71.9 70.9 70.0 69.0 68.0 67.0 66.1 65.1 64.1

69 72.9 71.9 70.9 69.9 69.0 68.0 67.0 66.1 65.1 64.1

70 72.9 71.9 70.9 69.9 69.0 68.0 67.0 66.0 65.1 64.1

71 72.9 71.9 70.9 69.9 69.0 68.0 67.0 66.0 65.1 64.1

72 72.9 71.9 70.9 69.9 69.0 68.0 67.0 66.0 65.1 64.1

73 72.9 71.9 70.9 69.9 68.9 68.0 67.0 66.0 65.0 64.1

74 72.9 71.9 70.9 69.9 68.9 68.0 67.0 66.0 65.0 64.1

75 72.8 71.9 70.9 69.9 68.9 68.0 67.0 66.0 65.0 64.1

76 72.8 71.9 70.9 69.9 68.9 68.0 67.0 66.0 65.0 64.1

77 72.8 71.9 70.9 69.9 68.9 68.0 67.0 66.0 65.0 64.1

78 72.8 71.9 70.9 69.9 68.9 67.9 67.0 66.0 65.0 64.0

79 72.8 71.9 70.9 69.9 68.9 67.9 67.0 66.0 65.0 64.0

80 72.8 71.9 70.9 69.9 68.9 67.9 67.0 66.0 65.0 64.0

81 72.8 71.8 70.9 69.9 68.9 67.9 67.0 66.0 65.0 64.0

82 72.8 71.8 70.9 69.9 68.9 67.9 67.0 66.0 65.0 64.0

83 72.8 71.8 70.9 69.9 68.9 67.9 67.0 66.0 65.0 64.0

84 72.8 71.8 70.9 69.9 68.9 67.9 67.0 66.0 65.0 64.0

85 72.8 71.8 70.9 69.9 68.9 67.9 66.9 66.0 65.0 64.0

86 72.8 71.8 70.9 69.9 68.9 67.9 66.9 66.0 65.0 64.0

87 72.8 71.8 70.9 69.9 68.9 67.9 66.9 66.0 65.0 64.0

88 72.8 71.8 70.9 69.9 68.9 67.9 66.9 66.0 65.0 64.0

89 72.8 71.8 70.9 69.9 68.9 67.9 66.9 66.0 65.0 64.0

90 72.8 71.8 70.9 69.9 68.9 67.9 66.9 66.0 65.0 64.0

91 72.8 71.8 70.9 69.9 68.9 67.9 66.9 66.0 65.0 64.0

92 72.8 71.8 70.9 69.9 68.9 67.9 66.9 66.0 65.0 64.0

93 72.8 71.8 70.9 69.9 68.9 67.9 66.9 66.0 65.0 64.0

94 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

95 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

96 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

97 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

98 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

99 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

100 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

101 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

102 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

103 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

104 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

105 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

106 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

107 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

108 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

109 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

110 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

Page 95: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 93 -

AGES 10 11 12 13 14 15 16 17 18 19

111 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

112 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

113 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

114 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

115+ 72.8 71.8 70.8 69.9 68.9 67.9 66.9 66.0 65.0 64.0

AGES 20 21 22 23 24 25 26 27 28 29

20 70.1 69.6 69.1 68.7 68.3 67.9 67.5 67.2 66.9 66.6

21 69.6 69.1 68.6 68.2 67.7 67.3 66.9 66.6 66.2 65.9

22 69.1 68.6 68.1 67.6 67.2 66.7 66.3 65.9 65.6 65.2

23 68.7 68.2 67.6 67.1 66.6 66.2 65.7 65.3 64.9 64.6

24 68.3 67.7 67.2 66.6 66.1 65.6 65.2 64.7 64.3 63.9

25 67.9 67.3 66.7 66.2 65.6 65.1 64.6 64.2 63.7 63.3

26 67.5 66.9 66.3 65.7 65.2 64.6 64.1 63.6 63.2 62.8

27 67.2 66.6 65.9 65.3 64.7 64.2 63.6 63.1 62.7 62.2

28 66.9 66.2 65.6 64.9 64.3 63.7 63.2 62.7 62.1 61.7

29 66.6 65.9 65.2 64.6 63.9 63.3 62.8 62.2 61.7 61.2

30 66.3 65.6 64.9 64.2 63.6 62.9 62.3 61.8 61.2 60.7

31 66.1 65.3 64.6 63.9 63.2 62.6 62.0 61.4 60.8 60.2

32 65.8 65.1 64.3 63.6 62.9 62.2 61.6 61.0 60.4 59.8

33 65.6 64.8 64.1 63.3 62.6 61.9 61.3 60.6 60.0 59.4

34 65.4 64.6 63.8 63.1 62.3 61.6 60.9 60.3 59.6 59.0

35 65.2 64.4 63.6 62.8 62.1 61.4 60.6 59.9 59.3 58.6

36 65.0 64.2 63.4 62.6 61.9 61.1 60.4 59.6 59.0 58.3

37 64.9 64.0 63.2 62.4 61.6 60.9 60.1 59.4 58.7 58.0

38 64.7 63.9 63.0 62.2 61.4 60.6 59.9 59.1 58.4 57.7

39 64.6 63.7 62.9 62.1 61.2 60.4 59.6 58.9 58.1 57.4

40 64.4 63.6 62.7 61.9 61.1 60.2 59.4 58.7 57.9 57.1

41 64.3 63.5 62.6 61.7 60.9 60.1 59.3 58.5 57.7 56.9

42 64.2 63.3 62.5 61.6 60.8 59.9 59.1 58.3 57.5 56.7

43 64.1 63.2 62.4 61.5 60.6 59.8 58.9 58.1 57.3 56.5

44 64.0 63.1 62.2 61.4 60.5 59.6 58.8 57.9 57.1 56.3

45 64.0 63.0 62.2 61.3 60.4 59.5 58.6 57.8 56.9 56.1

46 63.9 63.0 62.1 61.2 60.3 59.4 58.5 57.7 56.8 56.0

47 63.8 62.9 62.0 61.1 60.2 59.3 58.4 57.5 56.7 55.8

48 63.7 62.8 61.9 61.0 60.1 59.2 58.3 57.4 56.5 55.7

49 63.7 62.8 61.8 60.9 60.0 59.1 58.2 57.3 56.4 55.6

50 63.6 62.7 61.8 60.8 59.9 59.0 58.1 57.2 56.3 55.4

51 63.6 62.6 61.7 60.8 59.9 58.9 58.0 57.1 56.2 55.3

52 63.5 62.6 61.7 60.7 59.8 58.9 58.0 57.1 56.1 55.2

53 63.5 62.5 61.6 60.7 59.7 58.8 57.9 57.0 56.1 55.2

54 63.5 62.5 61.6 60.6 59.7 58.8 57.8 56.9 56.0 55.1

55 63.4 62.5 61.5 60.6 59.6 58.7 57.8 56.8 55.9 55.0

56 63.4 62.4 61.5 60.5 59.6 58.7 57.7 56.8 55.9 54.9

Page 96: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 94 -

AGES 20 21 22 23 24 25 26 27 28 29

57 63.4 62.4 61.5 60.5 59.6 58.6 57.7 56.7 55.8 54.9

58 63.3 62.4 61.4 60.5 59.5 58.6 57.6 56.7 55.8 54.8

59 63.3 62.3 61.4 60.4 59.5 58.5 57.6 56.7 55.7 54.8

60 63.3 62.3 61.4 60.4 59.5 58.5 57.6 56.6 55.7 54.7

61 63.3 62.3 61.3 60.4 59.4 58.5 57.5 56.6 55.6 54.7

62 63.2 62.3 61.3 60.4 59.4 58.4 57.5 56.5 55.6 54.7

63 63.2 62.3 61.3 60.3 59.4 58.4 57.5 56.5 55.6 54.6

64 63.2 62.2 61.3 60.3 59.4 58.4 57.4 56.5 55.5 54.6

65 63.2 62.2 61.3 60.3 59.3 58.4 57.4 56.5 55.5 54.6

66 63.2 62.2 61.2 60.3 59.3 58.4 57.4 56.4 55.5 54.5

67 63.2 62.2 61.2 60.3 59.3 58.3 57.4 56.4 55.5 54.5

68 63.1 62.2 61.2 60.2 59.3 58.3 57.4 56.4 55.4 54.5

69 63.1 62.2 61.2 60.2 59.3 58.3 57.3 56.4 55.4 54.5

70 63.1 62.2 61.2 60.2 59.3 58.3 57.3 56.4 55.4 54.4

71 63.1 62.1 61.2 60.2 59.2 58.3 57.3 56.4 55.4 54.4

72 63.1 62.1 61.2 60.2 59.2 58.3 57.3 56.3 55.4 54.4

73 63.1 62.1 61.2 60.2 59.2 58.3 57.3 56.3 55.4 54.4

74 63.1 62.1 61.2 60.2 59.2 58.2 57.3 56.3 55.4 54.4

75 63.1 62.1 61.1 60.2 59.2 58.2 57.3 56.3 55.3 54.4

76 63.1 62.1 61.1 60.2 59.2 58.2 57.3 56.3 55.3 54.4

77 63.1 62.1 61.1 60.2 59.2 58.2 57.3 56.3 55.3 54.4

78 63.1 62.1 61.1 60.2 59.2 58.2 57.3 56.3 55.3 54.4

79 63.1 62.1 61.1 60.2 59.2 58.2 57.2 56.3 55.3 54.3

80 63.1 62.1 61.1 60.1 59.2 58.2 57.2 56.3 55.3 54.3

81 63.1 62.1 61.1 60.1 59.2 58.2 57.2 56.3 55.3 54.3

82 63.1 62.1 61.1 60.1 59.2 58.2 57.2 56.3 55.3 54.3

83 63.1 62.1 61.1 60.1 59.2 58.2 57.2 56.3 55.3 54.3

84 63.0 62.1 61.1 60.1 59.2 58.2 57.2 56.3 55.3 54.3

85 63.0 62.1 61.1 60.1 59.2 58.2 57.2 56.3 55.3 54.3

86 63.0 62.1 61.1 60.1 59.2 58.2 57.2 56.2 55.3 54.3

87 63.0 62.1 61.1 60.1 59.2 58.2 57.2 56.2 55.3 54.3

88 63.0 62.1 61.1 60.1 59.2 58.2 57.2 56.2 55.3 54.3

89 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

90 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

91 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

92 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

93 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

94 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

95 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

96 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

97 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

98 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

99 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

100 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

Page 97: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 95 -

AGES 20 21 22 23 24 25 26 27 28 29

101 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

102 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

103 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

104 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

105 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

106 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

107 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

108 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

109 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

110 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

111 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

112 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

113 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

114 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

115+ 63.0 62.1 61.1 60.1 59.1 58.2 57.2 56.2 55.3 54.3

AGES 30 31 32 33 34 35 36 37 38 39

30 60.2 59.7 59.2 58.8 58.4 58.0 57.6 57.3 57.0 56.7

31 59.7 59.2 58.7 58.2 57.8 57.4 57.0 56.6 56.3 56.0

32 59.2 58.7 58.2 57.7 57.2 56.8 56.4 56.0 55.6 55.3

33 58.8 58.2 57.7 57.2 56.7 56.2 55.8 55.4 55.0 54.7

34 58.4 57.8 57.2 56.7 56.2 55.7 55.3 54.8 54.4 54.0

35 58.0 57.4 56.8 56.2 55.7 55.2 54.7 54.3 53.8 53.4

36 57.6 57.0 56.4 55.8 55.3 54.7 54.2 53.7 53.3 52.8

37 57.3 56.6 56.0 55.4 54.8 54.3 53.7 53.2 52.7 52.3

38 57.0 56.3 55.6 55.0 54.4 53.8 53.3 52.7 52.2 51.7

39 56.7 56.0 55.3 54.7 54.0 53.4 52.8 52.3 51.7 51.2

40 56.4 55.7 55.0 54.3 53.7 53.0 52.4 51.8 51.3 50.8

41 56.1 55.4 54.7 54.0 53.3 52.7 52.0 51.4 50.9 50.3

42 55.9 55.2 54.4 53.7 53.0 52.3 51.7 51.1 50.4 49.9

43 55.7 54.9 54.2 53.4 52.7 52.0 51.3 50.7 50.1 49.5

44 55.5 54.7 53.9 53.2 52.4 51.7 51.0 50.4 49.7 49.1

45 55.3 54.5 53.7 52.9 52.2 51.5 50.7 50.0 49.4 48.7

46 55.1 54.3 53.5 52.7 52.0 51.2 50.5 49.8 49.1 48.4

47 55.0 54.1 53.3 52.5 51.7 51.0 50.2 49.5 48.8 48.1

48 54.8 54.0 53.2 52.3 51.5 50.8 50.0 49.2 48.5 47.8

49 54.7 53.8 53.0 52.2 51.4 50.6 49.8 49.0 48.2 47.5

50 54.6 53.7 52.9 52.0 51.2 50.4 49.6 48.8 48.0 47.3

51 54.5 53.6 52.7 51.9 51.0 50.2 49.4 48.6 47.8 47.0

52 54.4 53.5 52.6 51.7 50.9 50.0 49.2 48.4 47.6 46.8

53 54.3 53.4 52.5 51.6 50.8 49.9 49.1 48.2 47.4 46.6

54 54.2 53.3 52.4 51.5 50.6 49.8 48.9 48.1 47.2 46.4

55 54.1 53.2 52.3 51.4 50.5 49.7 48.8 47.9 47.1 46.3

56 54.0 53.1 52.2 51.3 50.4 49.5 48.7 47.8 47.0 46.1

Page 98: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 96 -

AGES 30 31 32 33 34 35 36 37 38 39

57 54.0 53.0 52.1 51.2 50.3 49.4 48.6 47.7 46.8 46.0

58 53.9 53.0 52.1 51.2 50.3 49.4 48.5 47.6 46.7 45.8

59 53.8 52.9 52.0 51.1 50.2 49.3 48.4 47.5 46.6 45.7

60 53.8 52.9 51.9 51.0 50.1 49.2 48.3 47.4 46.5 45.6

61 53.8 52.8 51.9 51.0 50.0 49.1 48.2 47.3 46.4 45.5

62 53.7 52.8 51.8 50.9 50.0 49.1 48.1 47.2 46.3 45.4

63 53.7 52.7 51.8 50.9 49.9 49.0 48.1 47.2 46.3 45.3

64 53.6 52.7 51.8 50.8 49.9 48.9 48.0 47.1 46.2 45.3

65 53.6 52.7 51.7 50.8 49.8 48.9 48.0 47.0 46.1 45.2

66 53.6 52.6 51.7 50.7 49.8 48.9 47.9 47.0 46.1 45.1

67 53.6 52.6 51.7 50.7 49.8 48.8 47.9 46.9 46.0 45.1

68 53.5 52.6 51.6 50.7 49.7 48.8 47.8 46.9 46.0 45.0

69 53.5 52.6 51.6 50.6 49.7 48.7 47.8 46.9 45.9 45.0

70 53.5 52.5 51.6 50.6 49.7 48.7 47.8 46.8 45.9 44.9

71 53.5 52.5 51.6 50.6 49.6 48.7 47.7 46.8 45.9 44.9

72 53.5 52.5 51.5 50.6 49.6 48.7 47.7 46.8 45.8 44.9

73 53.4 52.5 51.5 50.6 49.6 48.6 47.7 46.7 45.8 44.8

74 53.4 52.5 51.5 50.5 49.6 48.6 47.7 46.7 45.8 44.8

75 53.4 52.5 51.5 50.5 49.6 48.6 47.7 46.7 45.7 44.8

76 53.4 52.4 51.5 50.5 49.6 48.6 47.6 46.7 45.7 44.8

77 53.4 52.4 51.5 50.5 49.5 48.6 47.6 46.7 45.7 44.8

78 53.4 52.4 51.5 50.5 49.5 48.6 47.6 46.6 45.7 44.7

79 53.4 52.4 51.5 50.5 49.5 48.6 47.6 46.6 45.7 44.7

80 53.4 52.4 51.4 50.5 49.5 48.5 47.6 46.6 45.7 44.7

81 53.4 52.4 51.4 50.5 49.5 48.5 47.6 46.6 45.7 44.7

82 53.4 52.4 51.4 50.5 49.5 48.5 47.6 46.6 45.6 44.7

83 53.4 52.4 51.4 50.5 49.5 48.5 47.6 46.6 45.6 44.7

84 53.4 52.4 51.4 50.5 49.5 48.5 47.6 46.6 45.6 44.7

85 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.6 45.6 44.7

86 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.6 45.6 44.6

87 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.6 45.6 44.6

88 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.6 45.6 44.6

89 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.6 45.6 44.6

90 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.6 45.6 44.6

91 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.6 45.6 44.6

92 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.6 45.6 44.6

93 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.6 45.6 44.6

94 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.6 45.6 44.6

95 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.5 45.6 44.6

96 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.5 45.6 44.6

97 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.5 45.6 44.6

98 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.5 45.6 44.6

99 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.5 45.6 44.6

100 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.5 45.6 44.6

Page 99: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 97 -

AGES 30 31 32 33 34 35 36 37 38 39

101 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.5 45.6 44.6

102 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.5 45.6 44.6

103 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.5 45.6 44.6

104 53.3 52.4 51.4 50.4 49.5 48.5 47.5 46.5 45.6 44.6

105 53.3 52.4 51.4 50.4 49.4 48.5 47.5 46.5 45.6 44.6

106 53.3 52.4 51.4 50.4 49.4 48.5 47.5 46.5 45.6 44.6

107 53.3 52.4 51.4 50.4 49.4 48.5 47.5 46.5 45.6 44.6

108 53.3 52.4 51.4 50.4 49.4 48.5 47.5 46.5 45.6 44.6

109 53.3 52.4 51.4 50.4 49.4 48.5 47.5 46.5 45.6 44.6

110 53.3 52.4 51.4 50.4 49.4 48.5 47.5 46.5 45.6 44.6

111 53.3 52.4 51.4 50.4 49.4 48.5 47.5 46.5 45.6 44.6

112 53.3 52.4 51.4 50.4 49.4 48.5 47.5 46.5 45.6 44.6

113 53.3 52.4 51.4 50.4 49.4 48.5 47.5 46.5 45.6 44.6

114 53.3 52.4 51.4 50.4 49.4 48.5 47.5 46.5 45.6 44.6

115+ 53.3 52.4 51.4 50.4 49.4 48.5 47.5 46.5 45.6 44.6

AGES 40 41 42 43 44 45 46 47 48 49

40 50.2 49.8 49.3 48.9 48.5 48.1 47.7 47.4 47.1 46.8

41 49.8 49.3 48.8 48.3 47.9 47.5 47.1 46.7 46.4 46.1

42 49.3 48.8 48.3 47.8 47.3 46.9 46.5 46.1 45.8 45.4

43 48.9 48.3 47.8 47.3 46.8 46.3 45.9 45.5 45.1 44.8

44 48.5 47.9 47.3 46.8 46.3 45.8 45.4 44.9 44.5 44.2

45 48.1 47.5 46.9 46.3 45.8 45.3 44.8 44.4 44.0 43.6

46 47.7 47.1 46.5 45.9 45.4 44.8 44.3 43.9 43.4 43.0

47 47.4 46.7 46.1 45.5 44.9 44.4 43.9 43.4 42.9 42.4

48 47.1 46.4 45.8 45.1 44.5 44.0 43.4 42.9 42.4 41.9

49 46.8 46.1 45.4 44.8 44.2 43.6 43.0 42.4 41.9 41.4

50 46.5 45.8 45.1 44.4 43.8 43.2 42.6 42.0 41.5 40.9

51 46.3 45.5 44.8 44.1 43.5 42.8 42.2 41.6 41.0 40.5

52 46.0 45.3 44.6 43.8 43.2 42.5 41.8 41.2 40.6 40.1

53 45.8 45.1 44.3 43.6 42.9 42.2 41.5 40.9 40.3 39.7

54 45.6 44.8 44.1 43.3 42.6 41.9 41.2 40.5 39.9 39.3

55 45.5 44.7 43.9 43.1 42.4 41.6 40.9 40.2 39.6 38.9

56 45.3 44.5 43.7 42.9 42.1 41.4 40.7 40.0 39.3 38.6

57 45.1 44.3 43.5 42.7 41.9 41.2 40.4 39.7 39.0 38.3

58 45.0 44.2 43.3 42.5 41.7 40.9 40.2 39.4 38.7 38.0

59 44.9 44.0 43.2 42.4 41.5 40.7 40.0 39.2 38.5 37.8

60 44.7 43.9 43.0 42.2 41.4 40.6 39.8 39.0 38.2 37.5

61 44.6 43.8 42.9 42.1 41.2 40.4 39.6 38.8 38.0 37.3

62 44.5 43.7 42.8 41.9 41.1 40.3 39.4 38.6 37.8 37.1

63 44.5 43.6 42.7 41.8 41.0 40.1 39.3 38.5 37.7 36.9

64 44.4 43.5 42.6 41.7 40.8 40.0 39.2 38.3 37.5 36.7

65 44.3 43.4 42.5 41.6 40.7 39.9 39.0 38.2 37.4 36.6

66 44.2 43.3 42.4 41.5 40.6 39.8 38.9 38.1 37.2 36.4

Page 100: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 98 -

AGES 40 41 42 43 44 45 46 47 48 49

67 44.2 43.3 42.3 41.4 40.6 39.7 38.8 38.0 37.1 36.3

68 44.1 43.2 42.3 41.4 40.5 39.6 38.7 37.9 37.0 36.2

69 44.1 43.1 42.2 41.3 40.4 39.5 38.6 37.8 36.9 36.0

70 44.0 43.1 42.2 41.3 40.3 39.4 38.6 37.7 36.8 35.9

71 44.0 43.0 42.1 41.2 40.3 39.4 38.5 37.6 36.7 35.9

72 43.9 43.0 42.1 41.1 40.2 39.3 38.4 37.5 36.6 35.8

73 43.9 43.0 42.0 41.1 40.2 39.3 38.4 37.5 36.6 35.7

74 43.9 42.9 42.0 41.1 40.1 39.2 38.3 37.4 36.5 35.6

75 43.8 42.9 42.0 41.0 40.1 39.2 38.3 37.4 36.5 35.6

76 43.8 42.9 41.9 41.0 40.1 39.1 38.2 37.3 36.4 35.5

77 43.8 42.9 41.9 41.0 40.0 39.1 38.2 37.3 36.4 35.5

78 43.8 42.8 41.9 40.9 40.0 39.1 38.2 37.2 36.3 35.4

79 43.8 42.8 41.9 40.9 40.0 39.1 38.1 37.2 36.3 35.4

80 43.7 42.8 41.8 40.9 40.0 39.0 38.1 37.2 36.3 35.4

81 43.7 42.8 41.8 40.9 39.9 39.0 38.1 37.2 36.2 35.3

82 43.7 42.8 41.8 40.9 39.9 39.0 38.1 37.1 36.2 35.3

83 43.7 42.8 41.8 40.9 39.9 39.0 38.0 37.1 36.2 35.3

84 43.7 42.7 41.8 40.8 39.9 39.0 38.0 37.1 36.2 35.3

85 43.7 42.7 41.8 40.8 39.9 38.9 38.0 37.1 36.2 35.2

86 43.7 42.7 41.8 40.8 39.9 38.9 38.0 37.1 36.1 35.2

87 43.7 42.7 41.8 40.8 39.9 38.9 38.0 37.0 36.1 35.2

88 43.7 42.7 41.8 40.8 39.9 38.9 38.0 37.0 36.1 35.2

89 43.7 42.7 41.7 40.8 39.8 38.9 38.0 37.0 36.1 35.2

90 43.7 42.7 41.7 40.8 39.8 38.9 38.0 37.0 36.1 35.2

91 43.7 42.7 41.7 40.8 39.8 38.9 37.9 37.0 36.1 35.2

92 43.7 42.7 41.7 40.8 39.8 38.9 37.9 37.0 36.1 35.1

93 43.7 42.7 41.7 40.8 39.8 38.9 37.9 37.0 36.1 35.1

94 43.7 42.7 41.7 40.8 39.8 38.9 37.9 37.0 36.1 35.1

95 43.6 42.7 41.7 40.8 39.8 38.9 37.9 37.0 36.1 35.1

96 43.6 42.7 41.7 40.8 39.8 38.9 37.9 37.0 36.1 35.1

97 43.6 42.7 41.7 40.8 39.8 38.9 37.9 37.0 36.1 35.1

98 43.6 42.7 41.7 40.8 39.8 38.9 37.9 37.0 36.0 35.1

99 43.6 42.7 41.7 40.8 39.8 38.9 37.9 37.0 36.0 35.1

100 43.6 42.7 41.7 40.8 39.8 38.9 37.9 37.0 36.0 35.1

101 43.6 42.7 41.7 40.8 39.8 38.9 37.9 37.0 36.0 35.1

102 43.6 42.7 41.7 40.8 39.8 38.9 37.9 37.0 36.0 35.1

103 43.6 42.7 41.7 40.8 39.8 38.9 37.9 37.0 36.0 35.1

104 43.6 42.7 41.7 40.8 39.8 38.8 37.9 37.0 36.0 35.1

105 43.6 42.7 41.7 40.8 39.8 38.8 37.9 37.0 36.0 35.1

106 43.6 42.7 41.7 40.8 39.8 38.8 37.9 37.0 36.0 35.1

107 43.6 42.7 41.7 40.8 39.8 38.8 37.9 37.0 36.0 35.1

108 43.6 42.7 41.7 40.8 39.8 38.8 37.9 37.0 36.0 35.1

109 43.6 42.7 41.7 40.7 39.8 38.8 37.9 37.0 36.0 35.1

110 43.6 42.7 41.7 40.7 39.8 38.8 37.9 37.0 36.0 35.1

Page 101: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 99 -

AGES 40 41 42 43 44 45 46 47 48 49

111 43.6 42.7 41.7 40.7 39.8 38.8 37.9 37.0 36.0 35.1

112 43.6 42.7 41.7 40.7 39.8 38.8 37.9 37.0 36.0 35.1

113 43.6 42.7 41.7 40.7 39.8 38.8 37.9 37.0 36.0 35.1

114 43.6 42.7 41.7 40.7 39.8 38.8 37.9 37.0 36.0 35.1

115+ 43.6 42.7 41.7 40.7 39.8 38.8 37.9 37.0 36.0 35.1

AGES 50 51 52 53 54 55 56 57 58 59

50 40.4 40.0 39.5 39.1 38.7 38.3 38.0 37.6 37.3 37.1

51 40.0 39.5 39.0 38.5 38.1 37.7 37.4 37.0 36.7 36.4

52 39.5 39.0 38.5 38.0 37.6 37.2 36.8 36.4 36.0 35.7

53 39.1 38.5 38.0 37.5 37.1 36.6 36.2 35.8 35.4 35.1

54 38.7 38.1 37.6 37.1 36.6 36.1 35.7 35.2 34.8 34.5

55 38.3 37.7 37.2 36.6 36.1 35.6 35.1 34.7 34.3 33.9

56 38.0 37.4 36.8 36.2 35.7 35.1 34.7 34.2 33.7 33.3

57 37.6 37.0 36.4 35.8 35.2 34.7 34.2 33.7 33.2 32.8

58 37.3 36.7 36.0 35.4 34.8 34.3 33.7 33.2 32.8 32.3

59 37.1 36.4 35.7 35.1 34.5 33.9 33.3 32.8 32.3 31.8

60 36.8 36.1 35.4 34.8 34.1 33.5 32.9 32.4 31.9 31.3

61 36.6 35.8 35.1 34.5 33.8 33.2 32.6 32.0 31.4 30.9

62 36.3 35.6 34.9 34.2 33.5 32.9 32.2 31.6 31.1 30.5

63 36.1 35.4 34.6 33.9 33.2 32.6 31.9 31.3 30.7 30.1

64 35.9 35.2 34.4 33.7 33.0 32.3 31.6 31.0 30.4 29.8

65 35.8 35.0 34.2 33.5 32.7 32.0 31.4 30.7 30.0 29.4

66 35.6 34.8 34.0 33.3 32.5 31.8 31.1 30.4 29.8 29.1

67 35.5 34.7 33.9 33.1 32.3 31.6 30.9 30.2 29.5 28.8

68 35.3 34.5 33.7 32.9 32.1 31.4 30.7 29.9 29.2 28.6

69 35.2 34.4 33.6 32.8 32.0 31.2 30.5 29.7 29.0 28.3

70 35.1 34.3 33.4 32.6 31.8 31.1 30.3 29.5 28.8 28.1

71 35.0 34.2 33.3 32.5 31.7 30.9 30.1 29.4 28.6 27.9

72 34.9 34.1 33.2 32.4 31.6 30.8 30.0 29.2 28.4 27.7

73 34.8 34.0 33.1 32.3 31.5 30.6 29.8 29.1 28.3 27.5

74 34.8 33.9 33.0 32.2 31.4 30.5 29.7 28.9 28.1 27.4

75 34.7 33.8 33.0 32.1 31.3 30.4 29.6 28.8 28.0 27.2

76 34.6 33.8 32.9 32.0 31.2 30.3 29.5 28.7 27.9 27.1

77 34.6 33.7 32.8 32.0 31.1 30.3 29.4 28.6 27.8 27.0

78 34.5 33.6 32.8 31.9 31.0 30.2 29.3 28.5 27.7 26.9

79 34.5 33.6 32.7 31.8 31.0 30.1 29.3 28.4 27.6 26.8

80 34.5 33.6 32.7 31.8 30.9 30.1 29.2 28.4 27.5 26.7

81 34.4 33.5 32.6 31.8 30.9 30.0 29.2 28.3 27.5 26.6

82 34.4 33.5 32.6 31.7 30.8 30.0 29.1 28.3 27.4 26.6

83 34.4 33.5 32.6 31.7 30.8 29.9 29.1 28.2 27.4 26.5

84 34.3 33.4 32.5 31.7 30.8 29.9 29.0 28.2 27.3 26.5

85 34.3 33.4 32.5 31.6 30.7 29.9 29.0 28.1 27.3 26.4

86 34.3 33.4 32.5 31.6 30.7 29.8 29.0 28.1 27.2 26.4

Page 102: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 100 -

AGES 50 51 52 53 54 55 56 57 58 59

87 34.3 33.4 32.5 31.6 30.7 29.8 28.9 28.1 27.2 26.4

88 34.3 33.4 32.5 31.6 30.7 29.8 28.9 28.0 27.2 26.3

89 34.3 33.3 32.4 31.5 30.7 29.8 28.9 28.0 27.2 26.3

90 34.2 33.3 32.4 31.5 30.6 29.8 28.9 28.0 27.1 26.3

91 34.2 33.3 32.4 31.5 30.6 29.7 28.9 28.0 27.1 26.3

92 34.2 33.3 32.4 31.5 30.6 29.7 28.8 28.0 27.1 26.2

93 34.2 33.3 32.4 31.5 30.6 29.7 28.8 28.0 27.1 26.2

94 34.2 33.3 32.4 31.5 30.6 29.7 28.8 27.9 27.1 26.2

95 34.2 33.3 32.4 31.5 30.6 29.7 28.8 27.9 27.1 26.2

96 34.2 33.3 32.4 31.5 30.6 29.7 28.8 27.9 27.0 26.2

97 34.2 33.3 32.4 31.5 30.6 29.7 28.8 27.9 27.0 26.2

98 34.2 33.3 32.4 31.5 30.6 29.7 28.8 27.9 27.0 26.2

99 34.2 33.3 32.4 31.5 30.6 29.7 28.8 27.9 27.0 26.2

100 34.2 33.3 32.4 31.5 30.6 29.7 28.8 27.9 27.0 26.1

101 34.2 33.3 32.4 31.5 30.6 29.7 28.8 27.9 27.0 26.1

102 34.2 33.3 32.4 31.4 30.5 29.7 28.8 27.9 27.0 26.1

103 34.2 33.3 32.4 31.4 30.5 29.7 28.8 27.9 27.0 26.1

104 34.2 33.3 32.4 31.4 30.5 29.6 28.8 27.9 27.0 26.1

105 34.2 33.3 32.3 31.4 30.5 29.6 28.8 27.9 27.0 26.1

106 34.2 33.3 32.3 31.4 30.5 29.6 28.8 27.9 27.0 26.1

107 34.2 33.3 32.3 31.4 30.5 29.6 28.8 27.9 27.0 26.1

108 34.2 33.3 32.3 31.4 30.5 29.6 28.8 27.9 27.0 26.1

109 34.2 33.3 32.3 31.4 30.5 29.6 28.7 27.9 27.0 26.1

110 34.2 33.3 32.3 31.4 30.5 29.6 28.7 27.9 27.0 26.1

111 34.2 33.3 32.3 31.4 30.5 29.6 28.7 27.9 27.0 26.1

112 34.2 33.3 32.3 31.4 30.5 29.6 28.7 27.9 27.0 26.1

113 34.2 33.3 32.3 31.4 30.5 29.6 28.7 27.9 27.0 26.1

114 34.2 33.3 32.3 31.4 30.5 29.6 28.7 27.9 27.0 26.1

115+ 34.2 33.3 32.3 31.4 30.5 29.6 28.7 27.9 27.0 26.1

AGES 60 61 62 63 64 65 66 67 68 69

60 30.9 30.4 30.0 29.6 29.2 28.8 28.5 28.2 27.9 27.6

61 30.4 29.9 29.5 29.0 28.6 28.3 27.9 27.6 27.3 27.0

62 30.0 29.5 29.0 28.5 28.1 27.7 27.3 27.0 26.7 26.4

63 29.6 29.0 28.5 28.1 27.6 27.2 26.8 26.4 26.1 25.7

64 29.2 28.6 28.1 27.6 27.1 26.7 26.3 25.9 25.5 25.2

65 28.8 28.3 27.7 27.2 26.7 26.2 25.8 25.4 25.0 24.6

66 28.5 27.9 27.3 26.8 26.3 25.8 25.3 24.9 24.5 24.1

67 28.2 27.6 27.0 26.4 25.9 25.4 24.9 24.4 24.0 23.6

68 27.9 27.3 26.7 26.1 25.5 25.0 24.5 24.0 23.5 23.1

69 27.6 27.0 26.4 25.7 25.2 24.6 24.1 23.6 23.1 22.6

70 27.4 26.7 26.1 25.4 24.8 24.3 23.7 23.2 22.7 22.2

71 27.2 26.5 25.8 25.2 24.5 23.9 23.4 22.8 22.3 21.8

72 27.0 26.3 25.6 24.9 24.3 23.7 23.1 22.5 22.0 21.4

Page 103: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 101 -

AGES 60 61 62 63 64 65 66 67 68 69

73 26.8 26.1 25.4 24.7 24.0 23.4 22.8 22.2 21.6 21.1

74 26.6 25.9 25.2 24.5 23.8 23.1 22.5 21.9 21.3 20.8

75 26.5 25.7 25.0 24.3 23.6 22.9 22.3 21.6 21.0 20.5

76 26.3 25.6 24.8 24.1 23.4 22.7 22.0 21.4 20.8 20.2

77 26.2 25.4 24.7 23.9 23.2 22.5 21.8 21.2 20.6 19.9

78 26.1 25.3 24.6 23.8 23.1 22.4 21.7 21.0 20.3 19.7

79 26.0 25.2 24.4 23.7 22.9 22.2 21.5 20.8 20.1 19.5

80 25.9 25.1 24.3 23.6 22.8 22.1 21.3 20.6 20.0 19.3

81 25.8 25.0 24.2 23.4 22.7 21.9 21.2 20.5 19.8 19.1

82 25.8 24.9 24.1 23.4 22.6 21.8 21.1 20.4 19.7 19.0

83 25.7 24.9 24.1 23.3 22.5 21.7 21.0 20.2 19.5 18.8

84 25.6 24.8 24.0 23.2 22.4 21.6 20.9 20.1 19.4 18.7

85 25.6 24.8 23.9 23.1 22.3 21.6 20.8 20.1 19.3 18.6

86 25.5 24.7 23.9 23.1 22.3 21.5 20.7 20.0 19.2 18.5

87 25.5 24.7 23.8 23.0 22.2 21.4 20.7 19.9 19.2 18.4

88 25.5 24.6 23.8 23.0 22.2 21.4 20.6 19.8 19.1 18.3

89 25.4 24.6 23.8 22.9 22.1 21.3 20.5 19.8 19.0 18.3

90 25.4 24.6 23.7 22.9 22.1 21.3 20.5 19.7 19.0 18.2

91 25.4 24.5 23.7 22.9 22.1 21.3 20.5 19.7 18.9 18.2

92 25.4 24.5 23.7 22.9 22.0 21.2 20.4 19.6 18.9 18.1

93 25.4 24.5 23.7 22.8 22.0 21.2 20.4 19.6 18.8 18.1

94 25.3 24.5 23.6 22.8 22.0 21.2 20.4 19.6 18.8 18.0

95 25.3 24.5 23.6 22.8 22.0 21.1 20.3 19.6 18.8 18.0

96 25.3 24.5 23.6 22.8 21.9 21.1 20.3 19.5 18.8 18.0

97 25.3 24.5 23.6 22.8 21.9 21.1 20.3 19.5 18.7 18.0

98 25.3 24.4 23.6 22.8 21.9 21.1 20.3 19.5 18.7 17.9

99 25.3 24.4 23.6 22.7 21.9 21.1 20.3 19.5 18.7 17.9

100 25.3 24.4 23.6 22.7 21.9 21.1 20.3 19.5 18.7 17.9

101 25.3 24.4 23.6 22.7 21.9 21.1 20.2 19.4 18.7 17.9

102 25.3 24.4 23.6 22.7 21.9 21.1 20.2 19.4 18.6 17.9

103 25.3 24.4 23.6 22.7 21.9 21.0 20.2 19.4 18.6 17.9

104 25.3 24.4 23.5 22.7 21.9 21.0 20.2 19.4 18.6 17.8

105 25.3 24.4 23.5 22.7 21.9 21.0 20.2 19.4 18.6 17.8

106 25.3 24.4 23.5 22.7 21.9 21.0 20.2 19.4 18.6 17.8

107 25.2 24.4 23.5 22.7 21.8 21.0 20.2 19.4 18.6 17.8

108 25.2 24.4 23.5 22.7 21.8 21.0 20.2 19.4 18.6 17.8

109 25.2 24.4 23.5 22.7 21.8 21.0 20.2 19.4 18.6 17.8

110 25.2 24.4 23.5 22.7 21.8 21.0 20.2 19.4 18.6 17.8

111 25.2 24.4 23.5 22.7 21.8 21.0 20.2 19.4 18.6 17.8

112 25.2 24.4 23.5 22.7 21.8 21.0 20.2 19.4 18.6 17.8

113 25.2 24.4 23.5 22.7 21.8 21.0 20.2 19.4 18.6 17.8

114 25.2 24.4 23.5 22.7 21.8 21.0 20.2 19.4 18.6 17.8

115+ 25.2 24.4 23.5 22.7 21.8 21.0 20.2 19.4 18.6 17.8

Page 104: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 102 -

AGES 70 71 72 73 74 75 76 77 78 79

70 21.8 21.3 20.9 20.6 20.2 19.9 19.6 19.4 19.1 18.9

71 21.3 20.9 20.5 20.1 19.7 19.4 19.1 18.8 18.5 18.3

72 20.9 20.5 20.0 19.6 19.3 18.9 18.6 18.3 18.0 17.7

73 20.6 20.1 19.6 19.2 18.8 18.4 18.1 17.8 17.5 17.2

74 20.2 19.7 19.3 18.8 18.4 18.0 17.6 17.3 17.0 16.7

75 19.9 19.4 18.9 18.4 18.0 17.6 17.2 16.8 16.5 16.2

76 19.6 19.1 18.6 18.1 17.6 17.2 16.8 16.4 16.0 15.7

77 19.4 18.8 18.3 17.8 17.3 16.8 16.4 16.0 15.6 15.3

78 19.1 18.5 18.0 17.5 17.0 16.5 16.0 15.6 15.2 14.9

79 18.9 18.3 17.7 17.2 16.7 16.2 15.7 15.3 14.9 14.5

80 18.7 18.1 17.5 16.9 16.4 15.9 15.4 15.0 14.5 14.1

81 18.5 17.9 17.3 16.7 16.2 15.6 15.1 14.7 14.2 13.8

82 18.3 17.7 17.1 16.5 15.9 15.4 14.9 14.4 13.9 13.5

83 18.2 17.5 16.9 16.3 15.7 15.2 14.7 14.2 13.7 13.2

84 18.0 17.4 16.7 16.1 15.5 15.0 14.4 13.9 13.4 13.0

85 17.9 17.3 16.6 16.0 15.4 14.8 14.3 13.7 13.2 12.8

86 17.8 17.1 16.5 15.8 15.2 14.6 14.1 13.5 13.0 12.5

87 17.7 17.0 16.4 15.7 15.1 14.5 13.9 13.4 12.9 12.4

88 17.6 16.9 16.3 15.6 15.0 14.4 13.8 13.2 12.7 12.2

89 17.6 16.9 16.2 15.5 14.9 14.3 13.7 13.1 12.6 12.0

90 17.5 16.8 16.1 15.4 14.8 14.2 13.6 13.0 12.4 11.9

91 17.4 16.7 16.0 15.4 14.7 14.1 13.5 12.9 12.3 11.8

92 17.4 16.7 16.0 15.3 14.6 14.0 13.4 12.8 12.2 11.7

93 17.3 16.6 15.9 15.2 14.6 13.9 13.3 12.7 12.1 11.6

94 17.3 16.6 15.9 15.2 14.5 13.9 13.2 12.6 12.0 11.5

95 17.3 16.5 15.8 15.1 14.5 13.8 13.2 12.6 12.0 11.4

96 17.2 16.5 15.8 15.1 14.4 13.8 13.1 12.5 11.9 11.3

97 17.2 16.5 15.8 15.1 14.4 13.7 13.1 12.5 11.9 11.3

98 17.2 16.4 15.7 15.0 14.3 13.7 13.0 12.4 11.8 11.2

99 17.2 16.4 15.7 15.0 14.3 13.6 13.0 12.4 11.8 11.2

100 17.1 16.4 15.7 15.0 14.3 13.6 12.9 12.3 11.7 11.1

101 17.1 16.4 15.6 14.9 14.2 13.6 12.9 12.3 11.7 11.1

102 17.1 16.4 15.6 14.9 14.2 13.5 12.9 12.2 11.6 11.0

103 17.1 16.3 15.6 14.9 14.2 13.5 12.9 12.2 11.6 11.0

104 17.1 16.3 15.6 14.9 14.2 13.5 12.8 12.2 11.6 11.0

105 17.1 16.3 15.6 14.9 14.2 13.5 12.8 12.2 11.5 10.9

106 17.1 16.3 15.6 14.8 14.1 13.5 12.8 12.2 11.5 10.9

107 17.0 16.3 15.6 14.8 14.1 13.4 12.8 12.1 11.5 10.9

108 17.0 16.3 15.5 14.8 14.1 13.4 12.8 12.1 11.5 10.9

109 17.0 16.3 15.5 14.8 14.1 13.4 12.8 12.1 11.5 10.9

110 17.0 16.3 15.5 14.8 14.1 13.4 12.7 12.1 11.5 10.9

111 17.0 16.3 15.5 14.8 14.1 13.4 12.7 12.1 11.5 10.8

112 17.0 16.3 15.5 14.8 14.1 13.4 12.7 12.1 11.5 10.8

113 17.0 16.3 15.5 14.8 14.1 13.4 12.7 12.1 11.4 10.8

Page 105: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 103 -

AGES 70 71 72 73 74 75 76 77 78 79

114 17.0 16.3 15.5 14.8 14.1 13.4 12.7 12.1 11.4 10.8

115+ 17.0 16.3 15.5 14.8 14.1 13.4 12.7 12.1 11.4 10.8

AGES 80 81 82 83 84 85 86 87 88 89

80 13.8 13.4 13.1 12.8 12.6 12.3 12.1 11.9 11.7 11.5

81 13.4 13.1 12.7 12.4 12.2 11.9 11.7 11.4 11.3 11.1

82 13.1 12.7 12.4 12.1 11.8 11.5 11.3 11.0 10.8 10.6

83 12.8 12.4 12.1 11.7 11.4 11.1 10.9 10.6 10.4 10.2

84 12.6 12.2 11.8 11.4 11.1 10.8 10.5 10.3 10.1 9.9

85 12.3 11.9 11.5 11.1 10.8 10.5 10.2 9.9 9.7 9.5

86 12.1 11.7 11.3 10.9 10.5 10.2 9.9 9.6 9.4 9.2

87 11.9 11.4 11.0 10.6 10.3 9.9 9.6 9.4 9.1 8.9

88 11.7 11.3 10.8 10.4 10.1 9.7 9.4 9.1 8.8 8.6

89 11.5 11.1 10.6 10.2 9.9 9.5 9.2 8.9 8.6 8.3

90 11.4 10.9 10.5 10.1 9.7 9.3 9.0 8.6 8.3 8.1

91 11.3 10.8 10.3 9.9 9.5 9.1 8.8 8.4 8.1 7.9

92 11.2 10.7 10.2 9.8 9.3 9.0 8.6 8.3 8.0 7.7

93 11.1 10.6 10.1 9.6 9.2 8.8 8.5 8.1 7.8 7.5

94 11.0 10.5 10.0 9.5 9.1 8.7 8.3 8.0 7.6 7.3

95 10.9 10.4 9.9 9.4 9.0 8.6 8.2 7.8 7.5 7.2

96 10.8 10.3 9.8 9.3 8.9 8.5 8.1 7.7 7.4 7.1

97 10.7 10.2 9.7 9.2 8.8 8.4 8.0 7.6 7.3 6.9

98 10.7 10.1 9.6 9.2 8.7 8.3 7.9 7.5 7.1 6.8

99 10.6 10.1 9.6 9.1 8.6 8.2 7.8 7.4 7.0 6.7

100 10.6 10.0 9.5 9.0 8.5 8.1 7.7 7.3 6.9 6.6

101 10.5 10.0 9.4 9.0 8.5 8.0 7.6 7.2 6.9 6.5

102 10.5 9.9 9.4 8.9 8.4 8.0 7.5 7.1 6.8 6.4

103 10.4 9.9 9.4 8.8 8.4 7.9 7.5 7.1 6.7 6.3

104 10.4 9.8 9.3 8.8 8.3 7.9 7.4 7.0 6.6 6.3

105 10.4 9.8 9.3 8.8 8.3 7.8 7.4 7.0 6.6 6.2

106 10.3 9.8 9.2 8.7 8.2 7.8 7.3 6.9 6.5 6.2

107 10.3 9.8 9.2 8.7 8.2 7.7 7.3 6.9 6.5 6.1

108 10.3 9.7 9.2 8.7 8.2 7.7 7.3 6.8 6.4 6.1

109 10.3 9.7 9.2 8.7 8.2 7.7 7.2 6.8 6.4 6.0

110 10.3 9.7 9.2 8.6 8.1 7.7 7.2 6.8 6.4 6.0

111 10.3 9.7 9.1 8.6 8.1 7.6 7.2 6.8 6.3 6.0

112 10.2 9.7 9.1 8.6 8.1 7.6 7.2 6.7 6.3 5.9

113 10.2 9.7 9.1 8.6 8.1 7.6 7.2 6.7 6.3 5.9

114 10.2 9.7 9.1 8.6 8.1 7.6 7.1 6.7 6.3 5.9

115+ 10.2 9.7 9.1 8.6 8.1 7.6 7.1 6.7 6.3 5.9

AGES 90 91 92 93 94 95 96 97 98 99

90 7.8 7.6 7.4 7.2 7.1 6.9 6.8 6.6 6.5 6.4

91 7.6 7.4 7.2 7.0 6.8 6.7 6.5 6.4 6.3 6.1

Page 106: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 104 -

AGES 90 91 92 93 94 95 96 97 98 99

92 7.4 7.2 7.0 6.8 6.6 6.4 6.3 6.1 6.0 5.9

93 7.2 7.0 6.8 6.6 6.4 6.2 6.1 5.9 5.8 5.6

94 7.1 6.8 6.6 6.4 6.2 6.0 5.9 5.7 5.6 5.4

95 6.9 6.7 6.4 6.2 6.0 5.8 5.7 5.5 5.4 5.2

96 6.8 6.5 6.3 6.1 5.9 5.7 5.5 5.3 5.2 5.0

97 6.6 6.4 6.1 5.9 5.7 5.5 5.3 5.2 5.0 4.9

98 6.5 6.3 6.0 5.8 5.6 5.4 5.2 5.0 4.8 4.7

99 6.4 6.1 5.9 5.6 5.4 5.2 5.0 4.9 4.7 4.5

100 6.3 6.0 5.8 5.5 5.3 5.1 4.9 4.7 4.5 4.4

101 6.2 5.9 5.6 5.4 5.2 5.0 4.8 4.6 4.4 4.2

102 6.1 5.8 5.5 5.3 5.1 4.8 4.6 4.4 4.3 4.1

103 6.0 5.7 5.4 5.2 5.0 4.7 4.5 4.3 4.1 4.0

104 5.9 5.6 5.4 5.1 4.9 4.6 4.4 4.2 4.0 3.8

105 5.9 5.6 5.3 5.0 4.8 4.5 4.3 4.1 3.9 3.7

106 5.8 5.5 5.2 4.9 4.7 4.5 4.2 4.0 3.8 3.6

107 5.8 5.4 5.1 4.9 4.6 4.4 4.2 3.9 3.7 3.5

108 5.7 5.4 5.1 4.8 4.6 4.3 4.1 3.9 3.7 3.5

109 5.7 5.3 5.0 4.8 4.5 4.3 4.0 3.8 3.6 3.4

110 5.6 5.3 5.0 4.7 4.5 4.2 4.0 3.8 3.5 3.3

111 5.6 5.3 5.0 4.7 4.4 4.2 3.9 3.7 3.5 3.3

112 5.6 5.3 4.9 4.7 4.4 4.1 3.9 3.7 3.5 3.2

113 5.6 5.2 4.9 4.6 4.4 4.1 3.9 3.6 3.4 3.2

114 5.6 5.2 4.9 4.6 4.3 4.1 3.9 3.6 3.4 3.2

115+ 5.5 5.2 4.9 4.6 4.3 4.1 3.8 3.6 3.4 3.1

AGES 100 101 102 103 104 105 106 107 108 109

100 4.2 4.1 3.9 3.8 3.7 3.5 3.4 3.3 3.3 3.2

101 4.1 3.9 3.7 3.6 3.5 3.4 3.2 3.1 3.1 3.0

102 3.9 3.7 3.6 3.4 3.3 3.2 3.1 3.0 2.9 2.8

103 3.8 3.6 3.4 3.3 3.2 3.0 2.9 2.8 2.7 2.6

104 3.7 3.5 3.3 3.2 3.0 2.9 2.7 2.6 2.5 2.4

105 3.5 3.4 3.2 3.0 2.9 2.7 2.6 2.5 2.4 2.3

106 3.4 3.2 3.1 2.9 2.7 2.6 2.4 2.3 2.2 2.1

107 3.3 3.1 3.0 2.8 2.6 2.5 2.3 2.2 2.1 2.0

108 3.3 3.1 2.9 2.7 2.5 2.4 2.2 2.1 1.9 1.8

109 3.2 3.0 2.8 2.6 2.4 2.3 2.1 2.0 1.8 1.7

110 3.1 2.9 2.7 2.5 2.3 2.2 2.0 1.9 1.7 1.6

111 3.1 2.9 2.7 2.5 2.3 2.1 1.9 1.8 1.6 1.5

112 3.0 2.8 2.6 2.4 2.2 2.0 1.9 1.7 1.5 1.4

113 3.0 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.5 1.3

114 3.0 2.7 2.5 2.3 2.1 1.9 1.8 1.6 1.4 1.3

115+ 2.9 2.7 2.5 2.3 2.1 1.9 1.7 1.5 1.4 1.2

Page 107: FOR RETIREMENT PLANS AND IRAS J.D., LL.M. Petrie... · ESTATE PLANNING FOR RETIREMENT PLANS AND IRAS Gair Bennett Petrie Summary §13.1 Scope and Coverage §13.2 Income Tax Factors

Copyright 2013, Gair B. Petrie - 105 -

AGES ` 110 111 112 113 114 115+

110 1.5 1.4 1.3 1.2 1.1 1.1

111 1.4 1.2 1.1 1.1 1.0 1.0

112 1.3 1.1 1.0 1.0 1.0 1.0

113 1.2 1.1 1.0 1.0 1.0 1.0

114 1.1 1.0 1.0 1.0 1.0 1.0

115+ 1.1 1.0 1.0 1.0 1.0 1.0

Q-4. May the tables under this section be changed?

A-4. The Single Life Table, Uniform Lifetime Table and Joint and Last Survivor Table provided

in A-1 through A-3 of this section may be changed by the Commissioner in revenue rulings,

notices, and other guidance published in the Internal Revenue Bulletin. See §601.601(d)(2)(ii)(b)

of this chapter.